Women, pensions and divorce: A summary

Many women do not fully appreciate the vital role pensions can play in divorce agreements. This was revealed in our webinar ‘Women, pensions and divorce: what you need to know’, held in October 2021.

In fact UK women could be missing out on around £5 billion of pension assets, said Leigh Dunkley, Financial Wellbeing Lead at Schroders Personal Wealth, who hosted the webinar. She added that this was due to a lack of awareness of entitlements.

Indeed our recent research revealed that more than half of women are uncertain of their rights to their partner’s pension during divorce (1). Moreover, only 54.5% knew that pensions could form part of a divorce settlement. In addition, Dunkley pointed out that pensions are often ignored in divorce agreements.

Social and cultural barriers

Katie Nutting, Personal Wealth Adviser at Schroders Personal Wealth, said she thought this was due to social stereotyping. ‘Financial advertising has been quite typically aimed at men. We also see a lot of traditional set-ups with families in areas of the media, where the man goes out to work and the woman might be the homemaker,’ she commented. ‘So we consume this idea that a woman doesn’t need to know about financial planning and doesn’t need to make financial decisions. This can make it difficult for them to feel confident when it comes to money and, particularly, pensions.’

Solicitor Catherine Silwal, Director at Teelan & Silwal Family Law, sees cultural issues at play. ‘It’s a generalisation, but often the woman is the primary carer of the children,’ she said. ‘It might be a choice of: there’s only so much money in the pot, so I will keep the house, because that’s the children’s home and that’s where they feel safe, and then he can have the cash, investments or pension.’

Further reading: How can divorce affect women's financial wellbeing?

Look beyond the home

Silwal outlined some bleak consequences of this perspective. ‘What other financial assets might they be losing out on? If you’re keeping the family home, it’s a capital asset that doesn’t produce an income. What if your husband keeps rental properties and investments in a dividend-producing fund? Also, it’s very easy to see the pension as a capital value, but we all know it’s an income stream on retirement. So where’s that going to leave women, who have not been working full time, on retirement? Probably in a situation where they have to sell up, downsize and are struggling to make ends meet.’

For Becky Diamond, Workplace Relationship Manager at Scottish Widows, the financial services industry is often guilty of over-complicating pensions, and not just for women. ‘As an industry we are working hard to simplify the language we use and ensure that everyone can gain more confidence in their understanding of financial matters,’ she said.

Pension gap between the sexes

Dunkley highlighted gender inequalities in pensions, pointing out that the average pension pot at retirement is smaller for women (£51,000) than for men (£157,000). ‘Divorce can often highlight these inequalities even further,’ she added.

Dunkley offered several reasons for why women’s pension savings are relatively small. There is a gender pay disparity; 75% of women work part-time; and women are more likely to take career breaks. This affects retirement savings and underpins what she describes as a ‘pension gap’.

How to narrow the pension gap

Even so, women can take steps to counter this gap. Diamond stressed the importance of knowing your workplace pension and of keeping up pension contributions when not in paid employment. ‘The employer will sometimes offer higher contribution rates if the employee can afford to pay more,’ she said. ‘If you are taking a career break, then think about whether you can afford to continue to pay at least a minimum amount into that pension so you don’t have a gap.’

Meanwhile, Dunkley highlighted how the partner of the main carer could consider paying into their pension scheme on their behalf if they take time off work to bring up children. However, they can only pay in £3,600 a year or, if the carer is still doing some work, up to 100% of their relevant earnings, to a maximum of £40,000.

More encouragingly, Diamond said employers are today more aware of workplace gender inequalities. ‘I am seeing much more commitment to addressing those inequalities and helping employees to plan for their retirement savings,’ she said. In addition, the recent Scottish Widows Women in Retirement report showed that an increasing number of women are saving adequately for retirement.

Further reading: How do we escape the pension gender gap?

Vulnerability in divorce

Marriage break-ups can, however, put women off dealing with financial matters at a time when they need to be at their most attentive. Silwal said: ‘I understand why women, who are often the primary carer and trying to juggle work and manage a legal process as well, don’t engage with grappling with a pension at the time of a divorce.’

Grappling with financial issues during divorce can indeed be formidable and exacerbated by a lack of financial knowledge. Nutting said: ‘Having to deal with a financial situation for the first time is so daunting. It’s a period of severe vulnerability. Some women don’t even know if there’s a mortgage on the house. By neglecting financial issues you may leave yourself open to being in a very vulnerable position.’

Know the basics

So what can women do to reduce this vulnerability? Dunkley said there is a need to know the financial basics, while Diamond said women need to think about income in retirement.

Nutting added that retirement provisions involve more than just pensions. ‘You need to have a good understanding of where you are in terms of assets, rather than burying your head in the sand. Knowing where you are, and then looking at how you’re invested, what contributions you’re making, that’s a big starting point.

‘Our research shows a high proportion of women’s assets are often held in cash. Cash has delivered really poor returns in the last 13 years. And a lot of the news now is about inflation. Could potentially high inflation outstrip the returns you get on cash? You need to know your current position, make the most of what you’ve got out there, invest outside of cash, and write down your plan.’ However, there are many factors to consider before you make decisions about which assets to invest in, and investment decisions need to be tailored to your particular circumstances.

Use free information and consultations

Unfortunately, professional financial and legal advice can be expensive. However, much information on the financial basics is available for free. Diamond highlighted the usefulness of the Money & Pensions Service, and added that the Citizens Advice Bureau can provide help and have an updated service.

Diamond also suggested contacting your pension provider for information on retirement savings and workplace schemes and checking out the information, available for free, on the Scottish Widows consumer website. Moreover, Silwal said her firm, Teelan & Silwal Family Law, offers free legal consultations. Nutting added that Schroders Personal Wealth offers free initial consultations. In addition, at Schroders Personal Wealth there are no hidden charges or fees and you won’t pay unless you go ahead with the recommendations in our financial plan.

Take professional advice

A key concern among the panellists is people often find it hard to face up to their circumstances. Diamond said consulting professionals for support is critical: ‘Don’t sleepwalk into a problem.’

Even if you do need to pay an Independent Financial Adviser (IFA) for a pension report, this can, according to Silwal, be money well spent. She said: ‘It’s a very small cost in comparison to what you could lose and sometimes you need to spend a little bit of money to get a lot more and make sure that it’s done properly.’

Moreover, fees can be transparent and you can even have charge caps on advice. Nutting pointed out that all Schroders Personal Wealth fees are available online, with a free initial consultation, an initial fee and then charges for ongoing advice. Significantly, all standard fees with caps are available on the Schroders Personal Wealth website. ‘That is really important when it comes to divorce, because people are then very fee-sensitive,’ she said. ‘A lot of the time we can take the fee from the pension, so that’s not an outlay people have to pay straight away.’

Further reading: What is a financial plan?

Nutting also highlighted the need to work with a good solicitor, warning that some solicitors are not knowledgeable about pensions. ‘Unless you go to a solicitor experienced in financial matters, you might not get all of your financial options. So, when it comes to pensions, make sure you’re working with someone who understands them. Go to the right people and well-qualified people,’ she said. However, Silwal pointed out that this is not cheap: ‘Legal fees can mount up. We can offer what’s called “unbundled advice”, which is where we’re in the background advising the client but not officially on the court record, so you don’t have to pay for unnecessary correspondence.’

Dunkley, Nutting and Diamond all stressed the benefit of a written financial plan. Nutting pointed out the benefits of using a good financial planner. ‘They will always consider your short, medium and long-term objectives and will work with you to get a plan to achieve those goals,’ she said.

‘Nobody comes to me and says: “I want this amount of money in my bank account at this point in time.” People say: “I want to retire early, to help my children get on the property ladder, I’ve got parents I need to help with.” These are life dreams, as corny as that sounds, and it’s all done by creating a cash flow model to show you what may be possible.’

Unmarried couples

If issues of pensions and divorce can put unprepared women at a disadvantage, then it can be far worse for unmarried women separating from long-term partners. Silwal said: ‘The law on cohabitation is grotesquely out of date and there is no protection for women who are not married.’

She added that a married woman can make a claim for all financial provisions. ‘If you’re not married, you don’t have any claims for yourself: the only thing you can claim for is for your children. It’s definitely a disadvantage not to be married.’

Silwal also suggested an unmarried woman could talk to their partner and ask them for extra support and provision to be made during the relationship. Moreover, something could be put aside for you in the event that there is a relationship breakdown. ‘See if you can get your partner to contribute something to your pension, because you’re not going to get anything from him by way of pension share if you split up,’ she said. Bear in mind that this would be limited to £3,600 a year or, if the woman is still undertaking some paid work, up to 100% of their relevant earnings, to a maximum of £40,000.

Joint attendance

Nutting added that there are benefits if both partners attend financial meetings, even when the relationship is healthy. ‘You’re not just planning one person’s life; you’re planning their life together. We’re talking about how much support you want to give your children or when you think you’re going to retire. This takes away a bit of that potential vulnerability because everybody’s “in the know” and both parties know that they’re on the same page. So, if it does come to a breakdown, it should hopefully be easier when they’re working with solicitors. It can be much more amicable because you know what each other’s finances are.’

Meanwhile, Silwal said post-nuptial agreements can help simplify the financial issues of divorce and separation. ‘You need to consider financial issues from the start of a relationship,’ she said. ‘You can have post-nuptial agreement or even a pre-nuptial or cohabitation agreement. The reality is that nobody thinks about this kind of thing. But it could cover what happens during the relationship, not just the divorce. Perhaps that’s something we’ll see happen more in the future but not at the moment unfortunately.’

Lastly, Nutting pointed out: ‘People can get in touch with me via LinkedIn, via email or you can always pick up the phone. We do full free initial consultations. So you’re not paying anything and there’s no obligation to move forward, if you just want to see what’s out there and see if we’re the right fit for you.’ Furthermore, at Schroders Personal Wealth there are no hidden charges or fees and you won’t pay unless you go ahead with the recommendations in our financial plan.

Our panellists’ top tips

Becky Diamond

The earlier you can start paying into your pension the better, as the longer those contributions are working for you the better. Check out your workplace pension and make the most of your contributions.

Catherine Silwal

Prepare for the worst. With cohabitees, there is nothing after the kids have grown up, so get money paid into a pension by yourself or your partner at the earliest stage possible.

Katie Nutting

Speak to a professional. There are lots of free resources out there. You can spend free time with a professional. Pick up the phone. Speak to a financial planner, solicitor or pension provider. This can lift the fog without necessarily incurring charges. Then you know that you’re going to get the best advice possible, enabling you to make the best decisions.

Furthermore, Schroders Personal Wealth offers free initial consultations, there are no hidden charges or fees and you won’t pay unless you go ahead with the recommendations in our financial plan.

(1) Schroders Personal Wealth, Women and Pension Survey Key Findings, August 2021.