Research released by Aviva has confirmed what we as family law specialists already knew: there is a worrying lack of awareness about the importance of pensions when it comes to agreeing a financial settlement in divorce.
Pensions are typically among the largest assets in a divorce, and it’s not uncommon that one spouse has a significantly higher pension assets than the other. In some cases, the value of a pension can be greater than that of the matrimonial home.
According to Aviva, 15% of divorced people didn’t realise their pension could be impacted by getting divorced and 34% neglected to make a claim on their former spouse’s pension and it was not included as an asset in the settlement.
Worryingly, 8% of divorcees say they didn’t have their own pension savings as they were relying on their spouse to finance their retirement.
As a result of divorce 19% say they will be, or are, significantly worse off in retirement.
Few would argue that pensions are simple to understand. It requires professional advice to establish their true value and then to apportion them within a settlement.
“If you are facing or contemplating a divorce, you need to think carefully about the potential financial settlement and how pensions play into that,” said David Anstee, Head of Family Law at KWW Solicitors.
“An annual statement from your pension provider doesn’t always paint a true picture, and some pensions can be more valuable than others.”
To determine how much a pension is worth, the court will require from the relevant pension company a basic valuation which gives a cash equivalent value for the retirement benefits.
However, a cash equivalent valuation will not always be appropriate, for example with final salary pension schemes or pension policies taken out on behalf of public service workers, where a cash equivalent approach may not reflect the true value of the benefits available.
Whatever valuation method is adopted, it is important to ensure the valuation obtained is up to date.
“The aim will be to try to make financial arrangements after divorce as fair as possible, taking into account the money available and the needs of you, your former spouse and any children who are still financially dependent,” said David Anstee.