Research which has been conducted by the pension firm Prudential finds that getting a divorce can remove a sixth of retirement money.
The study found that people retiring in 2017 will have an average income of roughly £20,000. For those who are retired, the figure is a much lower £16,300. The reason for such a drop in income is due to the financial cost of getting a divorce, including legal bills, and the division of valuable assets.
Pensions specialist at Prudential, Clare Moffat, said: ‘the financial impact of divorce can be devastating both in the short and longer-term, lasting well into retirement as divorcees experience expected retirement incomes of as much as 16% lower than those who’ve never divorced.’
The managing director of Wealth for Women, Mary Waring, said that pensions are one of the most valuable assets, but in the heat of a divorce, their importance can often be overlooked. She said that regularly pensions are not considered when divorce discussions are taking place. She said that as you get older, your pension increases, and that in some cases, its value will not be much different than the value of your home.
She added that it is easy for people to want the divorce to be done with as quickly as possible, due to it being a stressful and emotional time. At this point she suggests that it is important to make sure to think about long term implications, and not having the divorce over with in the short term.
Waring says that while pension offsetting might be the simplest route for couples to take, that it is not always the best. She warns that in swapping your pension for a house, you may think you are getting the better deal. Over the long-term, however, there will be concerns over a lack of ‘vital income’.
She advises against pension attachment, saying that you lack control, and if you partner decides to delay taking their pension, or decides to invest the pension recklessly, then you are unable to rely on this money. She says that relying on money from an ex-spouse also comes with emotional baggage that is best avoided.
She suggests that the fairest way to split pensions is by pension sharing. Pension sharing allows you to have control of your own share. It allows you to make sure that assets are in your name, and are taxed at your rate. This is on top of it allowing a clean break from your spouse, and not having to rely on them for payments.
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