Retirement without a pension?

A recent BBC report indicates that some young people are planning for a retirement without a state pension; due to economic and demographic trends they do not believe the state pension will exist by the time they retire.  

Whilst to some this may seem an issue to grapple with in many years’ time, it is a reality that some face now. Many divorcing spouses (usually women) find themselves with the prospect of being without any meaningful pension provision on retirement, typically as a result of sacrificing their career (and therefore their pension) for the sake of the family. 

To redress this, when a couple divorce, the Court has the power to make orders in respect of pensions, primarily by way of a ‘Pension Sharing Order’. This is the only way that a pension can be divided or transferred. However, unlike other financial arrangements (such as transfers of property or cash, which spouses can deal with themselves outside of Court), pension rights cannot be modified by the agreement of the parties alone. A Court order is required. That means that if a financial settlement is not formalised in a Court order, it will not be possible to make provision in respect of pensions. 

Even those who do formalise their financial settlement in a Court order do not always deal with pensions appropriately. Pensions are complex to value and divide, typically requiring expert actuarial input as well as legal advice, which can be expensive and time consuming. It is therefore not uncommon for a couple simply to ignore their pensions when dividing their resources, or deal with their pensions in a rudimentary fashion by ‘offsetting’ the notional fund value of the pension against other assets. 

This is rarely an appropriate way to deal with pensions and can lead to unfair or inappropriate outcomes. In many cases, a pension can be the most valuable asset in the case even if that is not immediately obvious and the notional fund value is not always reflective of the actual value of the pension. By failing properly to consider pensions when dealing with financial matters on divorce (either as a conscious choice or inadvertently) there is a significant risk of unfairness, which more often than not will prejudice the financially weaker party and/or leave them without adequate pension provision.

Divorcing spouses should heed the concerns of Gen Z and ensure they are properly considering their pension provision, otherwise they risk being left in a financially precarious position on retirement. Expert advice, from a specialist family lawyer and a pension expert, is often indispensable.