Why pensions are so important when it comes to divorce

There’s plenty of change during a divorce, but keeping pensions and investments at the forefront can make all the difference later on.

By Aviva financial adviser, Louise Moore

louise moore smiling
Louise Moore

It’s no secret that divorce is a hugely stressful life event, whether it’s a time for grieving or even celebration as both parties move onwards and upwards. On top of the ever-trundling emotional rollercoaster, there are the practical changes to deal with: moving, child care arrangements, solicitors, finances, social circles…

We’re only human, so of course some things get pushed to the back burner. It’s tempting to make pensions something to worry about later, but as a financial advisor for 15 years, I’ve seen too many people regret that. 

Here’s what I’ve learned: divorce impacts pensions — of both men and women of every class — in two vital ways. Firstly, it needs to be considered with other aspects of a settlement. Secondly, divorce leads to an unexpected change in your financial situation and it’s worth finding out the lay of the land, pensions included. Let’s look at both factors.  

Include pensions in the settlement

Pensions are often an area that’s not given proper consideration during a divorce. Sometimes pensions are seen as linked to the breadwinner’s job. So the other person might be more comfortable with asking for, as an example, a larger share of the house than an equal share of the pension. But agreements like these aren’t always as fair as they might seem. 

In that example, it relies on the house keeping its value, it ignores the costs of selling a home, and it means you could be asset-rich but cash-poor, and not have flexibility when it comes to your future income.

Situations like that go some way in explaining why divorced women’s pension pots end up being a third of divorced men’s: on average, £9,000 compared with £30,000 1.

So it’s vital to remember that pensions are an important asset just like any other, and settlements should reflect that. Solicitors will work out the fairest split of the pension along with everything else — and they should know not to brush it under the carpet.

Revisit your financial situation

Splitting up with your partner often leaves both parties in a situation they weren’t expecting. One person, or both, will move out of the house. The work and home responsibilities are rarely shared evenly, so each will have to learn how to make up the shortfall, and there also could be child support to think about.

Divorce is a time to figure out what you have now, and what you need in the future. But that’s no easy task, especially if the other party had been handling the finances until that point. The biggest issue isn’t the amount of money you have or don’t have — it’s about getting the confidence to deal with money matters and face the question head-on. There's evidence to suggest that this tends to be more difficult for women. We found when it comes to making financial investments, woman would rather play it safe, opting for a savings accounts (72% female v 62% men) and men are more likely to take risks and invest in stocks and shares 2.

But men can be just as vulnerable after a divorce. I've worked with men who are 55+ that haven't been able to afford to pay into a pension as they've been paying child maintenance for years. Although it might not be possible for them reach their dream retirement, they have a realistic picture of what their retirement will look like — so it's not a big shock. And we can come up with cost-efficient changes, like consolidating pensions into one pot with lower charges, and choosing the right risk level for the customer.

As we often say, knowledge is power.

Ready to bring on the next phase?

It might seem daunting at first, but the opportunity to be in charge of your own future can be an unexpected benefit of divorce. 

  • The first step to understanding your pension after a divorce is to sit down and work it out. The government’s State Pension forecast is a great place to start
  • If you prefer someone to talk things through with you, people over 50 can speak with the independent government organisation, PensionWise. Although they can’t give you advice, they can give you information about pensions that might make things clear
  • If it’s still unclear, if you have a pension and want to know more about it, or you’re unsure where to invest your pensions, that’s when reaching out to an advisor can really help. Aviva financial advisers get paid the same amount whether a client ends up going with our advice or whether they get enough information from an initial conversation to act for themselves
  • Keep your investments in mind. You need to think about what to do with them and see which ones are right for you — this is something Aviva financial advisers can help you with too

The best bit of my job is seeing the opportunities for making my clients’ money go further, as well as putting them in control of their own finances. And the less they have to play with, the more it matters.

Book a call to see if financial advice is for you

Speak to an Aviva Financial Adviser for help building a personalised investment and retirement plan. Just so you know, our advisers can look at all your pensions, regardless of who they're with, but they can only recommend Aviva products and services.