I imagined myself “Sarah” on Tuesday night, Sarah a 50 year old recently divorced Mum, facing a future where she could just pay the bills but not plan for later and with what she thought a moderate pension. I was getting to know other people’s problem in an evening organised by James Smith and Alexandra Miles. I couldn’t ask the question in a crowded room but I felt that Sarah might not had quite the pension she’d hoped for.
I thought about the menopause, the leaving of children to adulthood and the lack of protection that women have of their rights to be supported in later life. I was being asked by James and Alex to be someone who I had not considered (though a divorced male twice).
The next day I encountered Sarah’s problem with Jonathan Guthrie in the Financial Times.
Divorce
Around two-fifths of UK marriages end this way. Divorce messes up a person’s money as well as their home life — particularly women’s pensions. That makes them worth investigating. Jonathan Guthrie tells us
Divorced women have median pension wealth of £65,192, compared with £150,434 for divorced men, the Pensions Policy Institute recently revealed (disclosure: I am a trustee of this charity). That disparity is shockingly greater than the 12.8 per cent gender pay gap.
“Wealth” is a sad word, it makes us think of financial well being but in pensions term it might only buy you around £3,000 a year of pension (less if you want proper inflation protection) or to have the money before you get to state pension age. The numbers don’t look good for Sarah
We are told why women fall behind men in wealth accumulation, they leave the workplace to care for children, sometimes for elderly family , rarely do they get a workplace pension when they’re out of work.
Guthrie points out that an increasing number of marriages aren’t formal – they are “common place” and if they break up, women have no right to split pensions (or much else that isn’t in their name). Divorce has been increasing since the 1990s and the ONS shows the carnage that has been wrought on marriage vows
We’re just getting worse at staying together, marriages are ending more than before and sooner than before. And here comes the crunch for Sarah and those like her
Retirement assets may feature less in negotiations than custody of the dog. “Pensions are often seen as belonging to individual spouses, rather than the marriage,” says Professor Emma Hitchings of Bristol University Law School.
The PPI’s Suzie Morrissey points out that women get paid off with propery
Which may explain why women’s pension gap increases after a divorce. Houses don’t pay the bills.
The difficulty, as PPI deputy director Suzy Morrissey points out, is that “they are not the same type of asset. Growth in the value of the pension [fund] may be quite different to that of the house.” A house is unitary and illiquid, I might add.
Sarah, in my deep dive into her life (in a group with women who looked disturbed) , got the house but how much pension we did not discuss. That what was assumed to be a fair share. I wonder if it was.
Guthrie tells us what he would like to happen
The fairest split, I reckon, will be one where both sides disclose their assets in full, pensions included, value them sensibly and negotiate trade-offs dispassionately. In harmonious marriages, the primary earner might meanwhile contribute to the pension of the primary carer. This can reduce joint tax costs later.
This I agree with in principal, but we are a long way to introducing it into all but the most sophisticated of divorce settlements. I have no answer to the problem other than through pressure from the Pension Commission or simply reports from the PPI’s Suzi Morrissey.
It takes Jonathan Guthrie and the FT to point out that the pension gender gap is least a problem if couples stay together.