Debora Price is a Professor of Social Gerontology at the University of Manchester and a member of the Pension Advisory Group
Christmas is a difficult time for relationships, and January typically sees a surge in people contemplating divorce. Amidst all the upheaval of a divorce, one thing less thought about is what should happen to the pensions. Scottish Widows research revealed that 70% of divorced people did not discuss pensions during their divorce proceedings, and unlike houses and savings which married people expect to share, fewer than 10% of married people said they would claim a share of any pensions on divorce. This is a crucially important issue for divorcing parties and for wider society. In the 1990s, growing awareness of profoundly high poverty rates and dependence on the State of older divorced women led to a successful cross-party campaign to have pensions included in financial division on divorce. Since the Welfare Reform and Pensions Act 1999, which came into force in 2000, it has been possible to share pensions in the same way as other assets like houses or savings.
The problem though, is that pensions are not like other assets. They are hugely complex and bewildering, and they are emotionally charged. Three main problems have emerged in practice since the pension sharing law came into effect. The first, as the Scottish Widows report demonstrated, is that pensions are still not routinely considered by divorcing couples, and Woodward’s research in 2014 revealed this can be the case even where solicitors and courts are involved. We know from official statistics that as at 2019, at most 12% of divorces result in some pension division. The second is that deciding on the value of a pension for divorce purposes is a really complicated problem – especially if you are trying to trade the pension off against other assets in the divorce settlement, for example a house. In a seminal piece of research in 2015 called Apples or Pears: Pension offsetting on divorce, Woodward and Taylor showed that valuation methods and outcomes varied widely across cases and across the country, and people are very reluctant to pay pension valuation experts and financial advisers to help them with these issues. The third problem is that pensions tend to be viewed as owned individually rather than a joint asset of the marriage. Consequently, including pensions in the divorce discussion can rapidly increase conflict. Emotions around pensions run so high that even with professional support, women can be reluctant to force their inclusion in the calculations. The Pension Advisory Group surveyed solicitors specialising in finance on divorce and found that it was a common experience for them that husbands do not want pensions taken into account, and that they are often instructed by wives they are acting for to drop the case against the pension as the emotional costs of the ‘pension fight’ are too high for their clients.
Pensions are an important vehicle for ensuring financial resilience and financial security in later life, which makes these matters of great concern to those with an interest in women’s wellbeing. Insuring Women’s Futures, a programme led by the Chartered Insurers Institute bringing together business leaders, experts and influencers, has published a manifesto calling for making pension sharing the default in all divorces. A report by Age UK in 2018 For Love or Money: Women’s pensions, expenditure and decision making in retirement called for it to become the norm for private pensions to be considered as part of the divorce process and, wherever possible, divided fairly between spouses. In this context, the Pension Advisory Group after two years’ work has produced a substantial report, A Guide to the Treatment of Pensions on Divorce, with guidance to the legal and financial services professions as to the conduct of divorce cases involving pensions. The report aims to ensure that pensions are properly considered in every case, are appropriately and consistently valued where needed, and that trade-offs against pension values (for example housing equity versus pension) are properly thought about. The report has just been adopted in the Financial Remedies Courts good practice protocol as guidance that ‘…will be applied, promoted and encouraged.’
However these important strides alone won’t make it so. There is now a much wider project needed to win the hearts and minds of divorcing couples and their advisers to make sure this issue is appropriately considered in every case, including those where people don’t have the help of lawyers and financial advisers, and which never get anywhere near a court.
There are approximately 100,000 divorces each year in England and Wales, there is substantial growth in the proportion of the population in middle age that are divorced, and the divorced population is ageing. We know that poverty risks in old age are especially high for mothers divorced after age 45. The division of gender roles in marriage and parenthood serve to women’s great cumulative financial disadvantage over the lifecourse. When couples separate, it is only fair that savings, pensions, housing and income should all be put into the mix in working out what should happen next, and how people will live in later life. It becomes a matter not just of public interest, but of social justice. Divorcing parties need to accept this, advisors should be clear and where needed persistent, and judges need to scrutinise proposed orders and reject agreements that do not adequately consider the pensions.