Getting divorced can be stressful and heart-breaking, of course, but the financial consequences could also be huge. Yet only 3% of people going through a separation seek professional financial advice.
Recent figures from the Office for National Statistics (ONS) confirm that divorce is on the rise among the over 60s. Changing cultural attitudes, and the strain of the coronavirus pandemic, are two contributing factors.
What effect could a divorce have on your retirement plans, and why is seeking advice so important?
1. We can help confirm the value of your pensions before a divorce
Depending on your level of pension provision, you may find you receive a pension settlement, or that your pension fund is reduced. Either way, financial advice can help, and it begins with knowing the size of your current pension pot.
If you have more than one defined contribution (DC) pension, you’ll need to request a “cash equivalent transfer value (CETV)” for each. You might also need to consider DC pensions already in payment.
Because a pension is invested, the CETV isn’t fixed and will fluctuate with changes in the market.
Final salary schemes can be even harder to value, but we can help there too so get in touch.
2. We can help you understand the ways a pension might be treated following a divorce
There are three main ways pension assets might be distributed following a divorce:
- A pension sharing order
This a formal agreement to divide pension assets by an exact percentage worked out by the courts. If you are the party receiving additional pension funds, you can either keep them in the same scheme as your ex-partner, under your own name, or transfer them to a new arrangement.
A sharing order allows for a clean break. You’ll need to apply for a court order, and the percentages are often agreed upon by the parties concerned through solicitors.
- A pension offsetting order
Pension offsetting means that the party with the lowest pension provision gets a greater part of other, non-pension assets. This might mean a bigger share of a jointly held property, for example.
You could find that this provides a financial boost in the short term, but it will be important to put a suitable pension provision in place separately.
- A pension earmarking order (or pension attachment order)
With an earmarking order in place, a certain portion of the pension is earmarked for the other party once the pension is taken.
You may choose to receive a regular income or a lump sum, but there is no legal transfer of ownership. The pension holder remains the sole name on the policy, tying you and your ex-partner’s finances together.
3. We can help if you have received a pension settlement
If you receive a pension settlement from your ex-partner, it could provide increased financial stability, but there will be some important decisions to make too. Those decisions will depend on which of the three pension settlement options are chosen.
If a pension sharing order is in place, you’ll need to manage the percentage you receive – also known as the “pension credit”. You might add it to another pension you hold. If you are over the current minimum retirement age of 55 (rising to 57 in 2028), you might access it immediately.
If you have received other assets through pension offsetting, we can help you decide how best to manage them.
You’ll need to think about your own pension provisions and plans for retirement, whatever option you take. This is especially important with earmarking as your ex-partner’s retirement plans will dictate when you receive your earmarked funds.
We can help you put your own retirement plan in place to help make you financially stable and able to achieve your goals without reliance on the earmarked funds.
4. We can help if your pension provision has been reduced
A divorce could mean a reduction in your overall pension provision, resulting in less income in retirement. If you are left with a shortfall, you might have to compromise on your retirement date or on your standard of living.
Speak to us if a divorce has altered your financial situation. We can help you make the necessary changes to your plan to mitigate the impact and keep you on track to meet your retirement goals.
5. We can help you plan your financial future following a divorce
A divorce might change your retirement plans completely. All big life events can change our priorities and force us to look at life differently.
Your original retirement goals might no longer apply. Speaking to us, or checking in for a regular review, will help you to think about any changes to your aspirations and how they might affect your plan.
Get in touch
A divorce is a big life event, and it can be a stressful, worrying time. Whether you find your pension provision increased or reduced, revisiting your plans is crucial.
Speak to us and we can ensure that your goals and aspirations remain attainable and that you are still on course for the standard of living you want in retirement. Please email hello@globeifa.co.uk or call us on 020 8891 0711.
Please note
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
