A report published on 7 March 2022 has warned that the Government’s plan to speed up the legal process for divorce in the UK risks creating the possibility that pension savings will become increasingly overlooked.
Steve Webb, former pension minister, and Rhys Taylor, family law barrister, have warned that more women could potentially face poverty in retirement due to the new laws (Divorce, Dissolution and Separation Act 2020) being introduced in the UK in April 2022. The laws will allow couples to secure a ‘no fault’ divorce ruling within six months of applying, rather than the two years specified under current legislation. Financial settlements will continue to be dealt with in a separate process which can continue alongside and/or after a divorce has been finalised.
Steve Webb suggests that the faster process of divorce could mean that technical details such as pension arrangements are therefore side-lined and greater priority is given to issues such as childcare, property, and more immediate financial security, commenting:
“One group currently at high risk of retirement poverty is divorced women. In large part, this is because relatively little attention is often given at the time of divorce to a financial settlement, which gives proper weight to pension wealth.”
Additionally, separating couples may underestimate the value of pensions and some could be tempted to ‘sham’ a divorce to abuse tax rules, according to Steve Webb and Rhys Taylor.
How is a pension divided on divorce?
Typically, there are three main ways in which a pension is divided on divorce via a financial settlement, which are:
- Pension sharing – where one spouse is awarded a share of the other pension wealth and gets a pension in his or her own right and their own name
- Pension attachment – where one spouse receives a share of the other pension when it comes to payment
- Pension offsetting – where one spouse agrees to receive a greater share of non-pension assets in return for forgoing a share of retirement wealth; this process does not require a Court order
Will the new no-fault divorce laws affect my pension?
As we have noted above, several experts have raised concerns that the new laws may undermine the effective sharing of pension wealth on divorce.
Financial orders are usually only made in around one in three divorces and not all of these financial orders include pension orders. This means that formal orders in respect of pensions only apply in a minority of cases.
Taking the time to make sure pension rights are included in any settlement and properly valued may be a low priority compared to issues including care of children, impact on living arrangements, and short-term financial support post-divorce but pensions should not simply be ignored.
It is understandable that divorcing couples sometimes focus on other matters, but the risk is that some people simply do not understand the value of pensions and therefore, can risk losing out on what is owed to them. Unfortunately, as the report referred to above suggests, these issues are more likely to affect women.
Within their report, Steve Webb and Rhys Taylor conclude their report by saying that there needs to be enhanced research and monitoring as to what happens during the divorce process in respect of taking account of pension wealth. They also state that the Ministry of Justice needs to closely observe attitudes towards pensions and how pensions are divided within financial settlements as a result of the no-fault divorce laws.
If you are going through separation or divorce and have any concerns about financial matters including your right to pension assets, it is important that you take specialist legal advice.
How can we help?
Emma Davies is a specialist family law solicitor at Nelsons, who specialises in divorce and financial settlements which involve complex issues.
If you need advice on any divorce-related matter or have any other family law-related queries, please contact Emma or another member of the team in Derby, Nottingham, or Leicester on 0800 024 1976 or via our online form.
Emma or the team we will be happy to discuss your circumstances in more detail and give you more information about the services that our family law solicitors can provide along with details of our hourly rates and fixed fee services.
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