The number of people getting divorced in their 60s is rise, driving the need for specialist pension advice. Carpenter Reese managing director Steve Rees discusses the opportunities
According to the Office for National Statistics (ONS), divorces among adults aged 60 and over are on the rise and, as more people find themselves in family court, there is an increasing demand for specialised pension services.
With more people choosing to separate in later life, the issue of pension provisions has suddenly leapfrogged other considerations, making it an integral part of the divorce process. Although rates overall are in decline, the number of UK divorces among 60-plus individuals increased by 73% for men and 82% for women between 1991 and 2011.
Factors contributing to this trend include: longer life expectancy and fewer marriages ending in the death of a spouse; a loss of social stigma associated with divorce; and more women participating in the labour market, resulting in greater financial independence and the ability to build up pensions of their own.
Typically, financial planners become involved at the end of a settlement, in order to implement a pension credit. However, working directly with solicitors during the negotiations is becoming increasingly common.
In December 2000, changes to the law, which are relevant to pension rights upon divorce, came into effect under the Welfare Reform and Pensions Act 1999. These allow family courts to make pension sharing orders. Under such an arrangement, the party with the larger pension may be required to transfer a specified percentage of their pension worth to their spouse.
The party gaining the benefit of the order receives a ‘pension credit'. However, an individual may not be able to take benefit from a pension share for many years. Pension trustees, who are responsible for protecting the interests of pension scheme members, remain very much in charge.
Pension splitting is far from straightforward. Many people assume that if they are married, they are entitled to 50% of the marital assets when, in actuality, there is no automatic entitlement to a spouse's pension. Simply splitting a pension pot down the middle is rarely an advisable option, as it is necessary to consider the complexities of the parties' age differences, incomes, pension contributions made both before, after and during marriage, as well as all other assets.
Despite gains in financial security outside of marriage, 60-plus women have typically accumulated fewer earnings over their lifetimes and have had less time to build adequate savings through employment. This can be due to issues such as childcare responsibilities, lower wages and part-time work, making them more reliant on their husband's pension for retirement.
Solicitors are faced with a number of factors which must be examined when determining an appropriate financial settlement on the breakdown of a marriage. A party's pension allocation must be carefully considered, as it can have a significant long-term impact on their retirement, and legal advisers face potential negligence claims if it is miscalculated.
According to the landmark case, White v White, which was decided by the House of Lords in 2000, courts are instructed to assume an equal division of matrimonial assets, unless the merits of the case prevent them from doing so. However, the complex nature of pensions means that a 50:50 split will rarely provide equality of income. This can be caused by an age gap between the relevant parties, changes in the value of individual pensions caused by transfer penalties or market value reduction penalties, undervaluing of the cash equivalent due to the current financial climate, or special public sector scheme considerations which affect how the pension may be split.
An experienced financial adviser can provide a lifetime cashflow analysis to help solicitors project how a lump sum, or maintenance arising from a settlement, may serve to meet their client's predicted standard of living. This in-depth review is based on an older adult's assumptions of income, expenditure and investment returns, as well as other factors such as inflation and interest rates.
Given the complexity of divorces involving 60-plus adults, and the risks associated with miscalculating pension allocations, it is necessary for financial advisers and solicitors to work together to ensure that the pension rights of both parties are appropriately addressed.
A solicitor's viewpoint
Gateley partner and head of the family team, Elizabeth Hassall, said:
"Pensions can become very valuable if a couple have been married for a long time and, particularly, if a pension is already in payment. If no other assets exist, sharing the pension is often the only means by which a divorce settlement can be achieved.
"It is a very complex area and working with experienced pension and financial advisers is essential from the outset.
"Even specialist family lawyers, with extensive experience of financial settlements, will seek advice to work out the component details of a pension. These details could include: widow's benefits; income provision; and whether a pension set-off, i.e. taking a larger slice of the non-pension assets, would be better for the client than a formal pension sharing order."
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