Mind the (big) gap: accounting for the true value of pensions in divorce
How much is a pension really worth - and who gets it after divorce? LGFL Director Anne Leiper explores how pension pots can be the financial elephant in the room that nobody can afford to ignore.
In LGFL’s earlier blog on the Spring Statement, we gave a brief summary of the changes to the pension rules and taxation, and the abolition of the cap on pension contributions.
That change may only affect a tiny percentage of the population (approx. 1%), but pensions are something that affect us all. Realising their importance and value is especially important when drawing up your financial agreement in divorce.
Enter the elephant
For many people, pensions are the financial elephant in the room: rarely noticed and seldom discussed. However, it’s an important elephant that is there to support you financially in later life and retirement. So, decisions about it can influence your lifestyle long after the divorce process has faded into memory.
If you’ve worked for a long time in a senior position, you may have accrued a pension pot of over £1million. However, if you’ve not worked ‘full-time’ for 30+ years due to raising the children or similar, you may not have accumulated such a big pension pot in your name.
This is particularly true for women. According to pension provider Aviva;
“The gender pension imbalance persist(s) into retirement with women aged 60-65 years old having pension pots which are on average just over half (57%) the size of men’s pots at the same age.”
That’s a big gap.
Full and frank disclosure
Any financial settlement must be made on the basis of “full and frank disclosure”. That means that both parties are legally obliged to declare all their assets, and pensions must be accounted for in a divorce settlement.
A cash equivalent transfer value needs to be provided by the pension company in respect of every pension. A pension actuary’s report may also be needed to assist in accurate valuing pensions and calculating the necessary pension sharing order percentages.
With all the figures to hand, a financial settlement can be made that is fair and takes into account what life after divorce will cost for each party, rather than splitting the money straight down the middle.
Any financial settlement must consider the short and medium term needs of both parties, and pensions will deal with long term needs.
Pension or house: which is better?
It might seem logical to “swap” a pension for the family home, but we previously explained, this may not provide the best solution or be fair in terms of true value: See our previous article on this here.
A two-way street
Pension sharing can be complicated, as you might have to share other assets too, such as the value of the family home. It’s one of the reasons we always advise anyone considering divorce to take legal advice early on.
If you’re considering separating or filing for divorce, contact us for an appointment to discuss your situation and finances. Our one hour fixed fee consultation allows time to explore issues, and give you information and advice that is tailored to your unique situation. Clients say that having a full 60 minutes to talk to one of our Directors gave them the information, understanding and confidence to start divorce proceedings.
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