‘Going after their pensions’- why this phrase makes me feel uncomfortable
Here's why you should ignore the phrase. If someone has been paying into their pension, the alternative is to bring the assets into the household instead.
When couples go through a divorce, it’s natural to focus on dividing the home, savings, and other visible assets. However, one major asset that is often overlooked is the pension. In fact, research has shown that a significant number of people do not consider pensions during divorce negotiations. A study by Scottish Widows found that 42% of people don’t include pensions in their financial settlements after divorce, potentially leaving thousands of pounds on the table.
Why You Shouldn’t Ignore Pensions in Divorce
Pensions are often one of a person's largest assets, sometimes even more valuable than a home. If you and your spouse have been together for many years, your pensions have likely grown considerably. Ignoring them in a settlement can lead to an uneven financial future, with one party receiving a disproportionate share of the marital assets.
Here are a few reasons why pensions need to be part of the conversation:
Long-Term Financial Security: For many, pensions are the cornerstone of their retirement plan. If you fail to include them in the divorce settlement, you might have inadequate funds in your later years. This can make retirement planning far more stressful and could lead to financial hardship.
Unequal Contributions: In many marriages, one spouse may have focused more on career while the other took care of children or household responsibilities. As a result, one spouse’s pension may be significantly larger. Without considering pensions in the settlement, the financially weaker spouse may be unfairly disadvantaged in the future.
Growth Potential: While property or savings may be easy to assess in value, pensions are long-term investments with growth potential. If you dismiss the pension now, you could give up significant future value.
Why It’s Important to Get Advice Early
Divorce can be complicated, and when pensions are involved, even more so. The sooner you get professional advice, the better. Here are some reasons why seeking guidance early on is crucial:
Pension Valuations Take Time: Unlike bank accounts or property valuations, finding the current value of a pension can be a slower process. It often requires contacting pension providers, waiting for statements, and understanding the complex rules around pension benefits. The earlier you start this process, the smoother your settlement will be.
Different Types of Pensions: There are three main types. There’s the state pension. A defined contribution pension is a retirement savings plan where you and/or an employer make regular contributions, and the final value depends on how much was paid in and how the investments perform over time. They might also be known as money purchase or personal pensions. A defined benefit pension is a retirement plan that guarantees a specific income in retirement, typically based on factors like your salary and years of service. A financial expert can help you understand how to assess and fairly divide each type of pension.
Avoid Mistakes: You could make expensive mistakes without proper advice. For example, some people agree to take a larger share of property instead of part of the pension, without realizing that the pension’s future value could be much greater. An advisor will help you make informed decisions.
How Pensions Are Split in Divorce
Pensions can be divided in several ways during a divorce, and it’s essential to know your options:
Pension Sharing Orders: This allows a portion of one person’s pension to be transferred into the other person’s pension pot, giving each party control over their share.
Pension Offsetting: In this case, one party keeps their pension, while the other receives a more significant share of another asset, such as property or savings, to balance things out.
Pension Attachment Orders: This option allows one to receive a portion of their ex-spouse’s pension when it is eventually paid out. However, this option is less popular as it leaves the other party reliant on their ex-spouse’s future decisions about the pension.
Look out for my other blog, ‘How Pensions Are Split in Divorce,’ where I expand on these further.
Don’t Leave It Too Late
Given the complexity of pensions and the time it takes to gather all the necessary information, starting to think about pensions early on in your divorce process is essential. Leaving it until the last minute could lead to rushed decisions, delays, missed opportunities, or an unfair settlement.
Final Thoughts: Seek Professional Advice
Divorce is already stressful, and adding pensions to the mix can feel overwhelming. However, seeking advice early ensures that your financial settlement is fair and considers all your assets. I can help you understand the true value of your pensions, ensuring that both parties have a secure financial future.
Remember, a pension is not just a piece of paper—it’s your future security. Don’t let it go unnoticed in your divorce settlement.
Part of my role involves cash flow modelling and financial reporting. This means examining your current assets and what you might save in the future and calculating your future income. Cash flow modelling helps with context. A settlement tells you what you get, but it’s the cash flow modelling that tells you what it does.
Getting the right advice will safeguard your retirement and ensure a balanced and equitable settlement. Make pensions a priority in your divorce planning! You can get in touch with me on:
Jamie Lowe- Financial Adviser and Director of True Self Wealth Ltd
Get in touch: 07469 712299 Jamie.Lowe@SJPP.co.uk
To find out more, visit www.truselfwealth.co.uk
To book an appointment, visit www.calendly.com/jamie-lowe-tsw
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