When dealing with the division of matrimonial assets within divorce proceedings, pensions are, more often than not, one of the main assets to be considered. Following a recent government briefing paper entitled “The Gender Pension Gap”, the issue of pension rights on divorce is more pertinent than ever.
The Gender Pension Pay Gap
Whilst the gender pay gap remains a well-publicised issue, what is less commonly commented on is the impact of this gender pay gap on retirement income. The Office of National Statistics (ONS) published figures for the year 2019-20 which revealed a gender pay gap in respect of pension provision of 37.9% between men and women.
On 4th April 2022, the aforementioned government briefing paper entitled “The Gender Pension Gap” highlighted that there are three key conditions which have helped to create such a stark difference in pension assets: –
- Caring responsibilities: Typically women are more likely than men to provide unpaid childcare and/or care for elderly relatives, meaning they are also more likely to be out of work or undertake part time work for extended periods.
- Life Expectancy: Demographically, women live longer than men and consequently need a greater initial fund to provide retirement income for a longer period.
- Autoenrollment: In order to qualify for autoenrollment an individual must earn at least £10,000p/a. As covered above, the caring responsibilities which many women take on over their lifetime can have a negative impact on their earning potential, thus meaning they may not qualify for autoenrollment.
So why is this relevant to divorce proceedings?
In 2021 the University of Manchester undertook a study which highlighted that in divorcees aged 55-64, men had an average private pension of £100,000 with women having pension provision of only £19,000.
As pension assets are often one of the largest assets held within a marriage, the consequences of failing to obtain a pension sharing order – particularly for women in light of the already existing gender pay gap – cannot be underestimated.
There are a number of reasons why pension assets might be overlooked or misunderstood during a divorce. For example:-
- the parties are self-representing and simply haven’t considered pensions as part of their broader discussions about finances and assets;
- one party (often the wife) has agreed to “off set” pension provision within financial settlement, usually so that they can remain in the family home, without being awarded a Pension Sharing Order;
- one or both of the parties have a particularly complex pension, for example a public sector defined benefit pension where the Cash Equivalent Value of the pension often does not accurately reflect the true value of the pot. In those cases, it is imperative to obtain a Pension Actuary Report in order to truly understand the value of the pension and how to achieve equality in retirement.
Where do we go from here?
The briefing paper suggests three possible reforms aimed at cutting the gender pension gap:-
- The provision of affordable and accessible care services to support women in full-time employment.
- That the consideration of pension rights on divorce should be made compulsory.
- That the earnings trigger for autoenrollment be reduced to the primary National Insurance threshold.
Unfortunately, at this stage these are merely proposed reforms. In the present circumstances, it is imperative that anyone considering divorce proceedings seeks specialist advice on their pension assets at an early stage and considers whether a referral to an Actuary is also required in order to make an informed decision on a subject which will undoubtedly impact upon them later in life.
For more information about divorce proceedings, the resolution of the matrimonial finances and pension sharing orders, please do not hesitate to contact Catherine Lowther (cel@swinburnemaddison.co.uk) or Kath Hill (kh@swinburnemaddison.co.uk) by email or by phone on 0191 384 2441.
