Splitting the difference?: Pension inequality in divorce
By Debora Price
Debora Price conducts new research into the inequalities of pensions when couples divorce
Following the 2019 Pension Advisory Group report, A Guide to the Treatment of Pensions on Divorce, a number of barriers were identified that prevent couples and their advisers from properly taking pensions into account on divorce. Focus groups of experts and a survey demonstrated that, even where lawyers wanted their clients to take account of the pensions, the emotional and financial costs of doing so are often too high. The evidence was that, in swathes of cases, pensions are not properly considered, for complex social and cultural reasons.
This echoed findings by Hilary Woodward and colleagues in her 2014 study of 369 court files, which showed that the fairness of pension outcomes was questionable in a significant proportion of the caseload examined. People often see the house vs the pension as a trade-off – but they do this, in many cases, without finding out what the pension is worth, nor thinking about how they are going to live in later life. The growth of litigants in person in the divorce courts means that many are not getting any legal advice, and most divorcing couples never register a court order.15 years post-divorce, there are court orders in only about a third of divorces. Pension sharing orders, brought in in 2000, are made in fewer than 12 per cent of divorces.
Dr Jennifer Buckley and I wanted to find out how unequal pensions are within couples, and whether there was any prima facie evidence that divorced women were now doing better. We examined the Wealth and Assets Survey, the best available data representative of the population. We found pensions of divorced women to be worryingly low, well below that of divorced men, and very substantial gender disparities existing for married couples across the population.
Overall, pension wealth is very unequally distributed. About 28 per cent of those over 30 have no private pension wealth, and 75 per cent have accrued £155,000 or less. Men have substantially more private pension wealth than women, with disparities increasing across age groups. For those aged 65-69, median pension wealth for men is just over £212,000, compared to just £35,000 for women. Married men have the most pension wealth. For the age group 45-54, most likely to get divorced, married men have median pension wealth of about £86,000, compared with £40,000 for married women – and at 55-64, the disparity is £185,000, compared with £55,800. Divorced men who are not cohabiting in the age group 45 – 54 have median pension wealth of £42,000, compared to similar women's wealth of £16,000 – and in the age group 55 – 64, the disparity is £100,000, compared with just £19,000 for similar divorced women.
The big picture
In about half of couples with pensions, one partner has 90 per cent of the pension wealth. Fewer than 15 per cent of couples have pensions that are approximately equal, and these disparities vary little across the income and wealth distributions.
For households in the top 40 per cent by household income, median pension wealth exceeds median property wealth. For example, for those in the highest income quintile, their median pension wealth exceeds £430,000, but their median net property wealth is approximately £325,000. This is especially likely to be the case for those living outside London and the South-East of England.
We think this reveals the importance of getting the pensions valued, and evaluating them properly within the context of every case – and this should be an essential first step. We would like to undertake further research to better understand how the balance of pension wealth within couples varies and the factors associated with this, and where possible, to understand individual transitions through divorce.
At the University of Manchester we have created a video animation aimed at divorcing couples, explaining the law and what needs to be done. If advisers would like to make use of the video in their client-facing material, do get in touch.
The report can be read here: https://www.research.manchester.ac.uk/portal/files/198615915/Pensions_and_Divorce_Exploratory_Analysis.pdf
A related article in Child and Family Law Quarterly, by Buckley and Price (2021), can be read here: ‘Pensions on Divorce: What now, where next’
Debora Price is Professor of Social Gerontology, University of Manchester, and a member of the Pension Advisory Group: manchester.ac.uk