Pensions minister Steve Webb has advised mothers going through a divorce to demand a share of their partner’s pension in order to avoid a financial struggle during their own retirement.
According to recent statistics approximately four in 10 UK marriages end in divorce, but future pension income is often overlooked in settlements.
Many people going through a divorce, mostly women, are put at an unfair disadvantage because they have put their career on hold to raise children from the marriage.
The common problem with divorce settlements is that the lower earner is often given immediate capital, such as property or a significant cash sum, but future income is given less priority.
Assets like pensions, which often rise in value over time, are usually left to the higher earner whose career has progressed because their partner took responsibility for certain domestic commitments.
Mr Webb said: “If you are part of a couple and you do not take out a pension for family reasons – whether that is caring for children or family in later life – and then you split up on the eve of retirement, there is a danger there.
“It is tempting to think about your immediate needs such as the house and the kids, but it is very important we make sure that pension share issue is at the forefront.
“There is a risk the pension becomes an after-thought and that people think ‘I will worry about that at retirement’. But a pension, and particularly if it is final salary, is very valuable and that future value is not always easy to grasp.”
There are many options available regarding pensions in divorce settlements: court agreements can allow pension sharing, which involves a share of the pension being granted to the ex-partner; the pension pot can be offset against other assets, meaning that one party could receive the family home (or a large share of it) if the other keeps their pension intact; and a deferred lump sum can also be agreed on, to be paid when their partner retires.
Informal divorce agreements made between couples are far more likely to be based on immediate circumstances, with the lower earner failing to consider their future financial situation.