Jane Keir, of Kingsley Napley, picked up The Daily Telegraph headline 'Divorced Women missing out on Pensions Wealth' on 7 January 2019, a date coincidentally dubbed 'Divorce Day' by the media. So it was clever positioning by the Royal London to whose Director of Policy, Sir Steve Webb, the headline belongs.
According to Sir Steve (a former Lib Dem MP and Minister of State for Pensions in the coalition government of David Cameron), couples over 50 typically have a £454,000 pot of wealth, compared with the average £131,000 for divorced women. Meanwhile, divorced men in the same age group have pension wealth of about £235,000.
So why is this? Well pensions are the most complex of assets to evaluate on divorce and so many shy away from lifting the bonnet on a pension and having a proper look at what lies beneath and how to value it.
The divorce process is expensive enough, especially where there are real differences between the parties as to what a fair financial settlement should look like so the tendency is just to include the latest cash equivalent value (CEV) figure for the pensions in the calculations and then treat them mistakenly as if they are effectively liquid, or semi liquid assets, similar to a house, or an ISA, or savings in the bank.
It is relatively easy to agree upon the value of the house. You know what you bought it for and quite enjoy looking at websites to see how its value compares with its neighbours and of course, there is always Zoopla. Not so for pensions. Even if you do know what they consist of, how on earth are you going to value them accurately?
One party – and it is usually the husband – then keeps the pension and gives credit for its value against the value of the family home. “She gets the house, he gets the pension”. If no-one takes the time or trouble to actually value the pensions, is one spouse getting the benefit of an asset which is worth much more than its face value and even more so in years to come? This might go some way towards explaining the huge discrepancies in the above example for a former couple in their 50’s.
So what do you do? At the very least, get a sense check as to the value of the pensions. Find a good financial adviser with qualifications in advising and assisting with regard to pensions. See more than one and find someone who impresses you. Shop around. Much depends on the type of pension scheme. Some may be easy to value and require no more than the annual statement of benefits provided by the pension scheme. Others may require an actuary to provide the answers to what the fund is worth.
The question of valuing such pensions should be addressed jointly by the parties and their advisers, as required by Financial Remedy Rules, so that both parties have an input as to how the valuation is carried out and any supplemental questions once the report is disclosed and obviously a joint liability to meet the costs. In my experience independent financial advisers are very keen to accept an instruction upon the basis that if the pension is shared – i.e. divided, then it is more likely than not that a new pension scheme will be required and thus a new client created.
So ignore pensions on divorce at your peril. Find out what they are worth and make sure that their full value appears in any asset schedule notwithstanding that the benefits may not yet be available in the way that cash and property are. Talk to an experienced and qualified independent financial adviser and don’t settle for less than the pensions are worth. Don’t be afraid of a pension sharing order – they were introduced to enable pensions to be divided – or in some cases transferred outright – between spouses. We can do something about the pensions gap by shining a spotlight on what they are and what they are worth and it should be a natural and automatic part of the financial disclosure process on divorce. So let’s mend and not just mind that gap.