Women, retirement and divorce
The impact of divorce on women when they retire
Divorce at any time, for anyone, will have a significant impact. Even the most amicable separation will bring a degree of upheaval when possessions are divided, arrangements made for custody and one household splits into two.
A retirement income is probably not at the forefront of considerations at this point. It might be understandable if those involved are young and expect to work for many more years before retiring. However, even in these circumstances, there is an assumption that both parties will have enough in their pension fund to finance their retirement. Unfortunately, where women are concerned, this may not be the case.
Pension funds in divorce settlements
Only 12% of women include pension pots in divorce-related financial calculations. More worryingly, nearly a quarter choose to waive their rights to any part of their partner’s fund.1
Often during divorce hearings, stay-at-home wives are routinely judged to have contributed to their husbands’ careers by running the home and looking after any children. Their settlement is based on the impact their ongoing support and home management has had on their husbands’ work-related achievements and salary.
Had the couple remained together, it would be fair to assume the retirement income would have been used by both spouses, for joint and individual purposes. Unfortunately, with so many women acceding this right to a share of their partner’s retirement income following divorce, many are finding themselves struggling financially in retirement.
We all need to prepare for our longer later lives, women arguably need to prepare more and the challenges they face are arguably greater. The 'gender pay gap' has received much attention. We also need to consider the 'gender pension gap'. We have much work to do. *Alistair McQueen, Head of Savings & Retirement at Aviva
Diverging career paths and divorcing later in life
For the vast majority of families, women take maternity leave whilst men continue to work full time. It’s more common for women to leave employment completely after the birth of their first child, return to work on a part-time basis only, or change career completely to fit work around childcare responsibilities. As a result, women’s pension funds can be considerably lower than men’s. The median pension wealth of divorced men and women by retirement is £103,500 and £26,100 respectively. 3
Divorce rates for those aged 50 and over is increasing, amounting to nearly half of all divorces based on the latest figures.4 Attitudes to divorce have changed significantly over the years and divorce is no longer seen as a social stigma. There are so many different types of family unit – same-sex parents, mixed race, mixed religion, dual nationality, multiple generations living together, “blended” families – that divorce is simply one more category. This may explain why older couples are now taking the step to separate when previously they might have remained together regardless of their happiness.
Employment options and the auto-enrolment gap
Many women in the 50+ age bracket have limited financial options. If they have taken a career break to raise children they could find it very difficult to re-enter the employment market at such a late stage. Working part-time offers more opportunities, but pension contributions from both employee and employer are proportionately lower. Overall, twice as many women as men (of all ages) work part-time;5 if earnings are less than £10,000 a year the employee won’t qualify for pensions auto-enrolment, even if they work more than one part-time job that takes them over the qualifying threshold. This might explain why on average, divorced women’s pension pots are around a third of men’s - £9,000 compared to £30,000.6
Paying into a pension fund won’t necessarily be a priority for a divorced woman over 50, especially if she is entering employment for the first time or after a long break. Auto-enrolment was introduced in 2012 so it’s possible that new employment entrants won’t be aware of its function. If the employee’s salary is below the threshold, the topic might not arise during the employment process. This could lead to an employee assuming incorrectly they have been automatically added to the company’s pension plan.
A financial adviser would be able to discuss pension options with their client, but is it customary to engage a financial adviser when going through a separation and divorce? If there are extensive assets it might be natural to call in the family financial adviser, but what about those whose financial circumstances will require they go back to work? If money is tight, it may seem pointless to ask a financial adviser to confirm this – the thought of asking for pensions advice might just not be on the client’s radar.
Perhaps it should instead be up to each party’s solicitor to highlight the consequences the divorce will have on a future retirement income. Whilst not qualified to offer pensions advice they will be able to recommend their client discusses the issue with an FA – both the allocation of existing funds and establishing new pensions investments moving forward.