Why divorce can play a major part in exacerbating pension inequality in the UK

Research shows women have to work for 19 more years to generate the same retirement savings as a man. Here’s how divorce can exacerbate pension inequality.

If your clients are female, they will likely have significantly less pension wealth than their male counterparts.

Indeed, new research from the NOW: Pensions gender pension gap report (2024) reveals that women would have to work for a staggering 19 more years to close the gender pension gap.

While there are many contributing factors to this – from a longer life expectancy to the gender pay gap – divorce can often be a key fault line for disparities in pension wealth.

Read on to find out more about the worrying size of the gender pension gap, and why divorce can exacerbate this inequality.

The average 67-year-old woman has £136,000 less in pension wealth than a man

The study reported by the Actuarial Post found that, by the time women reach the retirement age of 67, they will have average pension savings of £69,000. This is £136,000 less than the average man, who will have saved £205,000 in the same period.

For women to retire with the same amount in their fund as a man, they would need to work and save for an extra 19 years on average. As automatic enrolment starts at 22, girls are already falling behind boys in their provision for later life from the age of three.

There are many reasons why the gender pension gap exists:

• Women make up 79% of workers who earn less than the automatic workplace pension enrolment earnings threshold. As a result, 1.9 million women in employment are not automatically enrolled into a workplace pension.
• The average woman will spend 10 years away from the workforce to raise a family or take on other caring responsibilities.
• Lloyds says that almost half (48%) of women report that having children then slowed their career progression and made it harder to find new jobs.
• The rising cost of childcare is an issue for many working households, with the Actuarial Post reporting that the average cost of full-time nursery care for a child under age two in 2023 was £14,800 a year. As a result, many women find there is a financial barrier when they decide to return to work.
• On average, women live around seven years longer than men, meaning a woman’s pension wealth will likely need to go further.
   

The report found that two-thirds of pensioners currently in poverty are women, with single women making up half of this number.

Divorce can play a major part in exacerbating pension inequality

When a couple separates, agreeing a financial settlement is likely to be one of their key priorities. Despite pensions potentially being one of the biggest assets a couple will accrue, many couples simply don’t consider pension wealth when they come to finalise a settlement.

Lloyds (2024) reports that 3 in 5 divorced women (60%) did not discuss pension assets during their divorce at all. Of these, more than a quarter (28%) of women thought that pensions were not part of the proceedings.

Often, a couple may consider an “offsetting” arrangement when splitting wealth. Commonly, the female partner will elect to take on a property – especially if it is the family home – while the male partner retains pension assets.

While this may be an equitable split at the time, it can leave women with a significant shortfall when it comes to their later-life income.

Financial advice can help women ensure a fair split of pension assets on divorce

Divorce is one of life’s most stressful events, and it can be challenging to navigate a maze of financial issues at an already emotional time. Your female clients may have important questions concerning:

• Property – Where will they live after the separation? Can they afford to keep the family home, or buy a property in their name? This can be particularly pressing if there are children involved.
• Income – Can your client afford to maintain their standard of living on one income? Will there be any child or spousal maintenance involved? PensionsAge (7 February 2024) reports that ­women see their household income fall by 41% following a divorce (compared to just 21% for men).
• Savings and investments – Will your client have any savings to fall back on? Where should they save or invest any lump sum they receive as part of the settlement?
• Protection – Will any existing protection policies be cancelled? Could this leave your client underinsured?
• Pensions – How will any pension wealth be divided? Does your client have a pension set up that can accept a pension credit as part of any formal Pension Sharing Order?
   

Despite female clients facing many financial challenges, PensionsAge reports that only 7% of those going through a divorce seek independent financial advice.

Without professional help, many women are in danger of waiving their rights to valuable assets because they weren’t aware they could be included in any settlement.

Indeed, after their divorce, many women suggest they regretted their decision to not seek professional guidance, with almost a third (31%) saying they’d be more likely to turn to an adviser in future.

Get in touch

If you have female clients looking for professional help regarding their divorce – particularly with their financial arrangements – please get in touch to find out how I can support them.

Email lottie@truefinancialdesign.co.uk or call 07824 554288. As a new mummy, I will be on maternity leave until July 2024, so I appreciate your patience until I am back at work full-time.

Please note

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.