Rethinking retirement

For richer, for poorer

Ending a marriage has a financial impact as well as an emotional one, so the possibility of divorce is not something that can be ignored when planning for the future

17 May 2021

Meet our experts

Sara Mcleish

Sara McLeish

Chief Executive

Legal & General Financial Advice

Whether it comes as a devastating blow or a welcome – if daunting – opportunity to start afresh, divorce is a significant life event. The Holmes and Rahe Stress Scale, first formulated in the 1960s, places it second only to the death of a life partner in terms of its impact on physical and mental wellbeing.

Of course, the financial effects of divorce can be equally cataclysmic, further adding to the stress of the experience. And for older couples, whose financial lives have been intertwined for longer and whose future planning is likely to have been predicated on their marriage lasting into retirement and beyond, the impact is particularly severe.

Worse for women

According to the Office for National Statistics,1 the age of divorcing couples in the UK is the highest it has ever been – an average of 47.7 years for men and 45.3 years for women, with one in four divorces involving a person aged over 50. Research by Legal & General2 found that more than a third of these individuals would see their income reduced following divorce, by an average of £10,650.

For women, the impact is particularly severe. Legal & General Retail Retirement3 found that they are likely to see their household incomes fall by a third in the year following their divorce – almost double the rate experienced by men (33% vs. 18%). Quite understandably, women are significantly more likely to worry about the impact of divorce on their retirement (16% women vs 10%).

A roof over your head

And they have good reason to be concerned. The pensions playing field is far from level: by 65, men are likely to have accrued twice the median pension wealth of women, and in the event of a divorce, women are more likely than men to forfeit their entitlement to a share of their former husband’s pension pot. As research by Age UK4 reveals, 40% of women aged 55-70 years are dependent on their partners’ income for a decent retirement, as taking time out from the workplace to care for children or elderly relatives has hampered their ability to accrue pension assets of their own. 

It is important not to focus solely on the marital home at the expense of other assets. Nevertheless, divorce does have an impact on security of housing tenure. Although a resident parent of young children is likely to remain in the marital home following divorce, once children have flown the nest the picture becomes rather different. And once again, women are disproportionately impacted: research by Springer Nature5 found that whilst at least one partner of either sex is likely to move home in the four months following separation, instability for women is ongoing – their rate of relocation remains high even three years after separation, and decreases at a slower pace over time to that of men.

Our research indicates that too frequently people do not fully consider the financial implications and how that might impact their future retirement.

Sara McLeish

CEO

Legal & General Financial Advice

Plan for the worst

So, what can couples – particularly women – do to mitigate the negative financial consequences of divorce should the worst come to the worst and their marriage not last the distance?

As ever, readiness is all. While taking a step back from your career to care for children, it’s important to consider the long-term impact this will have, particularly on pensions. Frank and open discussion about finances before and during marriage, with the help of a financial adviser, can prevent unpleasant surprises in the event of a split, and make it harder for a disgruntled partner to conceal assets.

And, should the marriage break down irretrievably, it’s essential not to rush into separation before taking advice from legal and financial experts to ensure that all assets of the marriage, particularly pensions, are included in the pot for fair division.

Sara McLeish, CEO of Legal & General Financial Advice, says: “When going through a divorce, people are understandably keen to come to a settlement and move on, but our research indicates that too frequently people do not fully consider the financial implications and how that might impact their future retirement.

“People in the process of divorcing tend to focus on the family home, but overlook the mutual value of their pensions. Considering one, but not the other, can leave one or both parties at a significant financial disadvantage.”

With proper planning and a fair settlement, both partners can enjoy retirement – and potentially a new relationship – in a position to take care of themselves financially and continue to contribute actively towards their communities.

  1. ons.gov.uk
  2. Holy Matrimoney: divorce could leave you with £30,000 less in retirement
  3. The Divorce Gap – women see incomes fall by 33% following divorce, compared to just 18% for men
  4. ageuk.org.uk
  5. springer.com