If you’re going through a divorce, your pensions are included as part of the financial settlement and are likely to be the most valuable asset, after your home.

Chances are, you and your ex will have saved unequal amounts into your pensions during your marriage, and the amount of savings you are left with following a divorce could have a dramatic impact on your retirement income. You may even have saved nothing at all if you relied on your partner to save towards retirement.

In particular, women aged 55 and over tend to have lower pension savings and retirement incomes than men. According to recent reports, divorced non-cohabiting men between the ages of 55-64 have average pension savings of about £100,000, compared with just £19,000 for divorced women the same age. Read more in our article Divorced women’s pensions worryingly low.

However, divorce rates among this age group are rising. Latest figures from the Office for National Statistics reveal that the number of divorces rose by 18.4% to 107,599 in 2019. Despite this, according to a recent survey by investment firm Interactive Investor of 12,000 people, less than half of divorced retirees discussed pensions when they split.

Sarah Green, family lawyer at Michelmores, says: “A couple’s pension assets often have strikingly different values. This could be because one of the couple is paying more into their pension, or one may have been working part-time or taken time out of work to raise the children.”

“But it’s important that the overall pension pot as a whole is looked at during the divorce process, and that parity in the parties’ pension position is achieved where possible and appropriate.”

Here, we explain what happens to pensions when you divorce, and what you can do to boost your retirement savings.

Pension rights in divorce

What happens to your pension depends on where in the UK you are getting divorced, but bear in mind there is no specific formula, and potentially many variables.

Pensions and how their values are calculated can be complicated, so it’s typically not simply a case of splitting a pension straight down the middle when you separate. Couples can negotiate a pension-sharing settlement themselves through mediation. Or, it can be negotiated by solicitors – ultimately, it may be imposed by a judge if no agreement can be reached.

Green says: “The court will aim to achieve fairness, which when looking at pensions will typically mean an equal share of income on retirement. Even if you’re aiming to agree an out-of-court settlement, this is the benchmark that solicitors will recommend is used.”

There may also be other professionals involved in the pension-sharing process, such as actuaries. That’s because before any pension is shared, it must be valued, and this can be a complex process, particularly if one of you has a defined benefit, or final salary pension (see below).

In England and Wales, the value of all the pensions you have each built up during your lifetime (often including your State Pension) by the time you divorce is factored in. In Scotland, however, only the value of the pensions you have built up during the period of your marriage or civil partnership is taken into account, so anything saved after you split up, or before you entered a legally binding partnership is excluded.

If you get divorced and one of you has a much larger pension than the other, the partner with a larger pension may be forced to split, or share their pension. If you find yourself in this scenario, and receiving part of your ex’s pension, the amount to be transferred will be expressed as a percentage.

In England, Wales and Northern Ireland, pension sharing must be formalised in a pension sharing order of the court. That’s regardless of whether you’ve agreed your financial split, or it’s imposed by a judge. Green says: “Pension providers cannot implement a pension share without this specific order being made. Without an order specifying what’s happening to your finances in divorce, your pension claims could potentially remain ‘live’ even after you’ve moved on with your lives.” A lawyer can help you to draw up the paperwork that you need for this. In Scotland, a court order doesn’t have to be used when sharing pensions.

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Pension advice can help you get the most out of your retirement income, helping you on your way to a secure financial future. If you have more than £75k in pension savings, take the first step by arranging a free, no-obligation initial consultation with an expert from Aviva Financial Advice. Any recommendations advisers make will be for products from Aviva and other carefully selected partners. There’s no obligation, but if they feel you’d benefit from paid financial advice, they’ll go over how that works and the charges involved. Capital at risk.

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How are pensions shared in divorce?

Each divorce is considered on a case-by-case basis, and the treatment of any pensions may vary. However, pensions are usually shared or divided during divorce settlements in one of three ways:

Pension sharing: This is essentially when pension benefits are split when you divorce, and typically, the partner without or with a small pension receives a share of their partner’s benefits in their name (to equalise projected pension income in retirement).

If you receive a share of your partner’s pension, you may be able to keep the pension in its current scheme, or move it to a new pension, but it depends on the rules of that particular scheme.

This option enables a clear break, with both parties being clear how much pension is given up and received.

Offsetting: This takes into account other assets, with the value of any pension offset against other assets. So, for example, your ex might keep their pension in full, while you receive a larger share of other assets, such as property.

This scenario is only possible if there are other assets that may be offset against the value of the pension. A pension sharing report may still be required from an actuary to advise as to the appropriate offsetting sum.

Attachment order (‘Earmarking’): This option is becoming increasingly rare on divorce, but in this case, the partner without the pension may receive income or lump sums at retirement, so they are essentially ‘earmarked’ for them.

The court may also state that some pension benefits are paid on death. However, there are particular disadvantages to this option. For example, it means you must wait until your ex-partner retires or dies to receive a share of pension benefits, and until this stage, you have no control over how this money is invested, and may receive less than expected.

When you do receive pension benefits, all income is taxed at the original scheme member’s personal rate. So, for example, income could be taxed at the higher rate, even if you are a basic-rate taxpayer. If you remarry, you may also lose your right to a future pension.

Example case study from Amanda Redman Financial Planning

Let’s look at Jane and Paul, both age 45, married for 20 years with three children. Jane stopped work 15 years ago to look after the children.

Jane’s pensions are currently worth £30,000 and Paul’s £200,000. Better than no pension-sharing at all would be an equal split of the pensions, with Jane being awarded £85,000 of Paul’s pension value so they both leave the marriage with £115,000.

However a fairer way for Jane is to look at equalising the future value of the pension at age 60, taking into account that Paul’s earnings potential is considerably greater than her’s due to her giving up work to look after the children.

Let’s assume they both intend to work from now until 60, with Jane working part-time earning £15,000 a year and Paul working full-time earning £80,000 a year, and both paying 8% of their salary into pensions.

Excluding inflation, Jane will have added £18,000 to her pension pot of £115,000 and, assuming investment growth of 4% a year, will have approximately £232,100.

Paul will have added £96,000 and his pension pot will be approximately £340,400 – a significant difference of £108,300.

So to equalise their future values, Jane needs to be awarded a larger share of Paul’s pensions at the point of divorce, taking into account their likely future earnings. This can be calculated by a financial planner, or pension actuary.

Finally, a sobering thought. If Jane divorces without any share of Paul’s pensions, she will have just £88,260 at age 60 in her name, and Paul will have £493,465, which is why it’s so important to include pensions in any financial settlement.

Getting a fair outcome

If you’re going through a divorce there are some steps you can start taking to ensure a fair and clear outcome when it comes to pensions.

For a pension to be shared, divorce proceedings must have started. During this process a financial order must be drawn up, to include provision for pension sharing.

Green says: “Married couples who separate but don’t divorce can divide other assets but not a pension at the time of separation – this would have to be looked at as part of a future divorce.

“It’s not the case that pensions remain separate to everything else – I have lots of clients that come to me saying ‘oh that’s hers/his, they paid into it themselves and I’m not touching it’, but ignoring pensions can lead to unfair financial settlements and one party being in a worse position at the point of retirement.”

She recommends starting with a request for the ‘cash equivalent value’ of each of your pensions, for the purposes of divorce, which a pension provider should provide free of charge. If you’re approaching retirement, and the pension has already been used to purchase an annuity, or the pension is in drawdown, it’s vital to seek professional advice on the best approach to pension sharing.

“Women’s longer life expectancy can also have an impact on what is considered a fair split,” adds Green. Given the amount of variables, it’s typically important to seek legal and financial advice. Spending a little money on some decent advice early on could pay dividends in terms of securing your retirement income.”

Beware that pension sharing isn’t available for cohabitees who split up, or in any other type of separation besides divorce.

Defined benefit (final salary) pensions and divorce

Before any pension is shared on divorce, it must be valued, but this can be particularly complicated if defined benefit pensions (also known as final salary pensions) are involved. This type of pension uses a formula to calculate retirement income based on a percentage of final salary, and the number of years you have worked for your employer. You can find out more about final salary pensions in our guide What is a defined benefit pension?. Often, the scheme’s actuary will calculate the value of the member’s benefits. An independent actuary may then be instructed by a divorcing couple (or ordered by the court) to recommend to the court the appropriate percentage of the fund that will be shared.

State Pensions and divorce

Your basic State Pension is not automatically shared at retirement age with your ex-partner if you divorce. However, it’s possible to agree (or for a court to order) that you and your ex-partner share any extra State Pension entitlement you have, such as additional State Pension.

At present, whether you go through the courts or not, it’s still possible to receive an increase in your State Pension based on your ex-husband’s National Insurance Contributions (NICs) record. Provided you haven’t remarried or entered another civil partnership before reaching State Pension age, this could boost the amount you receive at retirement. However, many women are unaware that they may be entitled to an increase in their State Pension.

You can find out more about whether you may be entitled to claim an increase in your State Pension in our article Is my State Pension being underpaid?

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Use the Rest Less pension calculator to find out how much you might need to save for retirement, how much your pension pot could potentially be worth and how long it could last.

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Where to go for advice

Seeking financial and legal advice at the start of a divorce can be extremely helpful. A financial planner can assist with working out and implementing the pension share, as well as reviewing your overall financial situation. They may also provide advice on whether consolidating your pensions is a good option if you end up with several retirement pots, and look at where your retirement savings should be invested.

For more information, check out our guides on How to find the right financial advisor for you or How to get advice on your pension.

If you’re considering getting professional financial advice, Aviva is offering Rest Less members a free initial consultation with an expert to chat about your financial situation and goals. There’s no obligation, but if they feel you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.