Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group said: “With January recording the yearly high for divorce enquiries, for some this year’s ‘Blue Monday’ will be even more stressful. Amidst the emotional turmoil it’s easy to forget about pensions and the long-term impact on financial futures. However, they’re a valuable asset so it’s important to include them when working out how to move forward financially.
“The rules differ slightly across the UK, however if you’re married or in a civil partnership and you divorce or dissolve the partnership you might be entitled to some or even all of your partner’s pension. If you separate without formally divorcing or dissolving the partnership, you won’t be entitled to your partner’s pension but you could be entitled to their pension when they die.”
“Divorce can have a disproportionate negative impact on the future outcomes of women. Recent Phoenix Insights analysis discussed how the average age women get divorced is 44, at which stage often as a result of childcare and other caring responsibilities the gender pay gap is very high, at 18.1%. This has a direct impact on pensions as pension contributions are usually a percentage of salaries.”
Divorce and pensions facts
• The court will take all pensions into account “All of your and your partner’s pensions will be considered, including workplace and personal pensions. In England, Wales and Northern Ireland this will normally include pensions built up both inside and outside the marriage. In Scotland, only the value of pensions gained during the marriage will be taken into account – so anything built up before the marriage began or after the date of separation doesn’t generally count.
• There are three ways of dealing with the issue “Across the UK, there are three ways to resolve the question of pensions during divorce. These are known as
• Pensions offsetting, Pensions sharing and Pension attachment or earmarking orders. Each have their pros and cons.”
• Pensions offsetting “This is when the value of pensions is ‘offset’ against other assets. For example, one person might get a bigger share of the home and keep their pension, or keep other savings instead. This offers a clean break and doesn’t need a court order, but could lead to one person having little to live on in retirement. The decision is also based on the value of the pension today, so it will involve one person giving up their entitlement to future investment growth.”
• Pensions sharing “This is when all or a percentage of one person’s pensions is transferred to the other. Like pension offsetting, a big advantage is the clean break – once person A’s pension is transferred across, it’s in person B’s full control. On the downside, it can be quite complicated to set up and needs an order from the court.”
• Pension attachment orders “This is when one person agrees to pay a portion of their pension income to the other when, and only when, it starts being paid – also known as pension earmarking in Scotland. This might make things a bit simpler at the time of divorce itself, but it also requires a court order and the first person retains quite a lot of control of when and how the pension is used, and payments will stop when they die.”
Remember, you don’t have to go through this process alone – speaking to your employer or pension provider, a lawyer, an adviser if possible or booking a free appointment with the Government’s MoneyHelper service could be a big help.”
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