Divorce law shake-up fails to tackle long-term financial inequalities, experts warn

Major changes make separating more straightforward from today. But dividing the money is another matter, especially when we don’t talk about pensions

‘Typically, women’s retirement prospects are already worse than men’s but add in a divorce and they deteriorate even further’ (Getty/iStock)

The biggest overhaul of divorce law in 50 years is set to herald a rush to separate, as so-called “no fault” legislation comes into effect today. But experts warn the financial fate of divorced women remains perilous.

Designed to make the process simpler and less traumatic for couples splitting up, the new rules remove the need for one or both parties to have committed adultery, deserted, behaved unreasonably towards, or been separated for several years before a divorce is granted.

But the rules do nothing to address the persistent unfairness when financial assets are split, warns Emma Watkins, managing director for retirement and longstanding at Scottish Widows.

“We know from historical evidence, it’s likely that women are often left short-changed,” she says. “Typically, women’s retirement prospects are already worse than men’s but add in a divorce and they deteriorate even further.”

Despite pension pots commonly being the second largest, if not the largest, asset a couple has, they often go ignored during divorce, mistakenly seen as a personal possession, rather than shared. In fact, our analysis shows this is costing women up to £5bn a year.

Analysis of the most up-to-date Family Law Court statistics available by wealth management firm Quilter shows there were 116,612 petitions filed for dissolution of marriage in 2019, but only 13 per cent contained some sort of pension settlement order.

This is despite a recent trend in people getting divorced later in life. According to the Office for National Statistics, over the last two decades the average age for someone to get divorced has risen by eight years for both men and women, to 46.4 for men and 43.9 for women.

And while the new rules finally bring the divorce laws into the 21st century, “it does open the door to more couples doing their divorce themselves as the solicitors become less integral to the process”, says Jon Greer, head of retirement policy at Quilter.

“This in turn could mean that couples when considering how they split their money forget to include their respective pensions.”

The low number of pension settlements may be due to a lack of understanding or knowledge in this complex area by divorce practitioners and their clients. It could also be down to more people choosing to go down the pension offsetting route. For example, one spouse may want to stay in the marital home in lieu of receiving part of their ex-spouse’s pension rights.

In fact, single mothers’ pension wealth has almost halved over the past two years to just £11,000 – 40 per cent less than in 2020, research by pension provider NOW: Pensions has found, with more than half of single mothers currently ineligible for a workplace pension to help increase that amount.

The pensions trade association, the PLSA, suggests individuals need an income of £20,200 a year for a “moderate” lifestyle in older age, meaning single mothers face pension poverty.

Charlotte Carter, 31, a self-employed single mother, says: “As a single mother, it’s hard to plan for the future, as planning for the next month or year can often be a challenge. With the current living costs on the increase, these barriers are only going to get worse, but we’re a resilient group and we will keep fighting for equality in society.

“I have never even considered my long-term finances as my focus has always been zoned in on what actions I can take to improve my immediate future. I am relocating out of the city in order to secure rental accommodation due to the housing crisis. Single parents’ finances are being squeezed, more needs to be done to support single parents save for their future and raising awareness of this issue and the solutions that could resolve it is something that I believe can help make that change.”

“It is really troubling that the majority of single mothers are being locked out of workplace pension savings, with single mothers reaching retirement age with the lowest pension wealth on record,” adds Samantha Gould, head of campaigns at NOW: Pensions.

“The costs of childcare are unsustainable and as a single mother myself, there is already so much pressure as both the sole earner and carer in a household.  Single mothers will be feeling the pinch with many forced to stop working altogether to care for their children. This perpetuates the current savings gaps experienced by some groups in the UK which need to be addressed.

“With the majority of single mothers now locked out of workplace pensions, we are calling on the government to make policy changes and remove the auto-enrolment trigger of £10,000 and starting contributions from the first £1 of earnings,” she adds.

“This would bring an additional 200,000 single mothers into workplace pensions and increase their financial security in retirement. We must ensure that everyone has an equal opportunity to save for their futures and build an adequate savings pot for later in life.”