Fiona Tait: Pensions and the ‘quickie’ divorce

Fiona Tait looks at the government's plan to introduce 'no fault' divorces and says while the option will making splitting up easier for some, dividing pension assets should not be rushed

Divorce is rarely an enjoyable experience, and it doesn’t help that it can take a long time to finalise agreements.

The government is planning to address this by introducing a “no fault” option and allowing one spouse to get a divorce more quickly without the requirement to get consent from their partner. This will be good news for some unhappy individuals, but will it result in fair settlements for both parties or could one of them lose out in the rush to de-couple?

Intertwined

When a couple split up they don’t just physically separate, they also have to untangle all the things that belonged to the joint entity they once were.

For younger splitters this may consist of dividing up the books and furniture, but for those who have had time to build up more assets it is likely to require a financial settlement covering a house, savings and investments and potentially a pension.

For these older couples – the so-called “silver splitters” – it is often the case that marital assets don’t just need to be divided, they need to be redistributed from the “wage-earner” to the “home-maker” and this is particularly true of pensions.

Studies show that women, even those who actively save, are still likely to have smaller pension pots than men. According to the Centre for Policy Studies, women between the ages of 60-65 have on average less than half the pension pots of men of the same age – £64,000 for women compared to £125,000 for men

The reason is not hard to find. Women save less because they are paid less. According to the Office for National Statistics (ONS) the gender pay gap in 2017 was slightly lower than previous years but still sits at an average of 17.9%.

This not only affects the affordability of pension contributions it may also mean they miss out on automatic enrolment, and if they are auto-enrolled they will still save less due to the fact the contributions are usually based on a percentage of earnings.

New additions…

This is not a problem that is going to go away. Analysis by The Wellbeing, Health, Retirement and the Lifecourse project (WHERL) shows, unsurprisingly, that the pay gap starts to kick in at the point when people start a family.

When children arrive, it is likely that one or other parent will have to take at least some time off from work and/or reduce their working hours. Currently, this is most likely to be the mother, but the principle applies equally to fathers who are the primary homemaker.

This person will give up their immediate earnings and will most likely never be able to catch up again, even if they do return to the workforce. That is why it is necessary, and fair, to redistribute financial assets should the partnership break up later on.

The ability to obtain a quicker, hopefully, more amicable, divorce will make life easier for many.

It does not, however, change the need to get a proper financial settlement. It is crucial to remember that ending the marriage and formally dividing the matrimonial assets are two separate legal processes, and the latter must not be rushed or overlooked.

In 2016 Dale Vince, founder of a successful wind turbine firm, was ordered to pay £300,000 to his wife of three years, some 30 years after the marriage broke up because there was no legal financial settlement at the time of the divorce.

You also need a legal agreement to divide up a pension. Unlike the marital home, pensions, also likely to be one of the most valuable assets in a divorce, are not jointly owned.

It is entirely possible that the other party has little or no provision and furthermore has limited ability to build one up in the future.

So while no-fault divorces will remove one hugely contentious issue, it does not remove the other one – money.

Fiona Tait is technical director at Intelligent Pensions