Pensions  

Divorce law reform poses bigger risk for womens' pensions

Divorce law reform poses bigger risk for womens' pensions

The Ministry of Justice’s incoming divorce law changes aimed at speeding up the time it takes to get divorced runs the risk of worsening women’s pensions positions, according to Steve Webb, partner at LCP.

Under the new system, set to come into effect next month, neither party in a couple will have to prove ‘fault’ in order to obtain a divorce. This means, in theory, a divorce should not take more than six months from start to finish, according to LCP.

But in a report published today (March 7) looking at the impact of the new divorce law on pension sharing, Webb suggested shortened divorce proceedings could lead to rushed financial settlements and partners receiving “unfair” shares of their pension.

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“Where the marriage has been a long one, inattention to the pensions can seriously disadvantage the partner with less pension wealth,” the report said. “As research has demonstrated, this is almost invariably the wife.”

The report said if the emphasis of the new process becomes, in practice, ending a marriage swiftly, then there is a risk that anything seen as complicated, emotionally-charged or time consuming – such as sorting out pensions – will not get the attention that it deserves. 

It may also be the case, according to the report, that it will “feel harder” for some applicants who are divorcing ‘amicably’ under the new process to raise something as contentious as pensions.

“One group currently at high risk of retirement poverty is divorced women. In large part this is because relatively little attention is often given at the time of divorce to a financial settlement which gives proper weight to pension wealth,” said Webb.

“It is entirely understandable that divorcing couples focus on other matters, but the risk is that people simply do not understand the value of pensions.

“Whilst there is much to commend the new divorce law, it would be very unfortunate if a by-product was that even fewer divorces were accompanied by a fair sharing of the couple’s overall wealth, and in particular of pensions.”

To ensure an “already flawed system” doesn’t get “worse”, Webb’s report, which was co-written by specialist barrister Rhys Taylor, suggested three courses of action the Ministry of Justice should take to address these potential risks in the new system.

The first was for the government department to monitor the number of divorces involving financial settlements and whether there is any change in the number of financial orders involving pensions.

This, the report said, should be easy data to collect with the advent of the new ‘Form D81’ which has to be submitted by both parties when they want the court to approve a financial settlement reached out of court.

The second cause of action was for effective prompts or ‘nudges’ to both parties during divorce proceedings, in order “to give due weight to pensions”. It suggested “clear explanations” of how the system works and “signposts” to sources of assistance, such as the ‘Advice Now’ guide.