“Divorced Women missing out on Pensions Wealth” was the recent Daily Telegraph headline that caught my eye reporting on a study by Royal London and comments by their Director of Policy, Sir Steve Webb (former Minister of State for Pensions in David Cameron’s coalition government).
Not surprisingly the study found that divorced women tend to fare worse than married women or divorced men when it comes to their pension pot.
Couples over 50 typically have a £454,000 pot the research said, compared with the average £131,000 for divorced women and £235,000 for divorced men in the same age group.
So why is this? Well pensions are the most complex of assets to evaluate on divorce and so many shy away from lifting the bonnet on a pension and having a proper look at what lies beneath and how to value it.
The divorce process is expensive enough, especially where there are real differences between the parties as to what a fair financial settlement should look like, so the tendency is just to include the latest cash equivalent value (CEV) figure for the pensions in the calculations and then mistakenly treat them as if they are effectively liquid, or semi liquid assets, similar to a house, or an ISA, or savings in the bank.
It is relatively easy to agree upon the value of the house. You know what you bought it for and quite enjoy looking at websites to see how its value compares with its neighbours and of course, there is always Zoopla. Not so for pensions. Even if you do know what they consist of, how on earth are you going to value them accurately?
What typically plays out is then this. One party – and it is usually the husband – keeps the pension and gives credit for its value against the value of the family home. “She gets the house, he gets the pension”. If no-one takes the time or trouble to actually properly value the pensions, it could be that one spouse gets the benefit of an asset which is worth much more than its face value and even more so in years to come.
So what should women mid-divorce or contemplating divorce do about pensions?
At the very least, get a sense check as to the value of your pensions as a couple. Find a good financial adviser with qualifications in advising and assisting with regard to pensions. See more than one and find someone who impresses you. Shop around. Much depends on the type of pension scheme. Some may be easy to value and require no more than the annual statement of benefits provided by the pension scheme. Others may require an actuary to provide the answers to what the fund is worth.
The question of valuing such pensions should be addressed jointly by the parties and their advisers, as required by Financial Remedy Rules, so that both parties have an input as to how the valuation is carried out and actually there is a joint liability to meet the cost of the valuation exercise.
In my experience independent financial advisers are very keen to accept an instruction upon the basis that if the pension is shared – i.e. divided, then it is more likely than not that a new pension scheme will be required and thus a new client created.
Women ignore pensions on divorce at their peril.
It is important to find out what they are worth and make sure that their full value appears in any asset schedule notwithstanding that the benefits may not yet be available in the way that cash and property are. Equally consider a pension sharing order – they were introduced to enable pensions to be divided – or in some cases transferred outright – between spouses.
Divorce lawyers have a responsibility to encourage proper pension valuation to be a natural and automatic part of the financial disclosure process on divorce. That will help to mend and not just mind that pensions gap.
About Jane Keir
Jane Keir, a family and divorce law partner at Kingsley Napley LLP
Described as the only ‘eminent’ practitioner in the current London solicitor rankings, Jane advises on the protection of wealth, both pre and post divorce and her breadth of experience both in negotiating discreet settlements and in taking cases to trial, mean that she is much in demand by individual clients and Family Offices alike.