Fears pensions are being overlooked in DIY divorces

The number of spouses taking out pension sharing orders as part of their divorce has fallen, leading to fears that a rise in ‘DIY divorces’ could leave couples short in their retirement. 

To prevent this, a pension sharing order is the most common way of splitting retirement pots and will divide your pension at the time of divorce. However, the number of requests for these has dwindled, despite an increase of 'DIY divorce' applications. the 

Here, Which? explains how a change in divorce law could be leading to more ‘DIY’ applications and what this could mean for your pension. 

Why should you think of pensions during a divorce?

Pensions are usually the biggest asset for divorcing couples, and make up 42% of total household wealth, according to the Office for National Statistics (ONS). By comparison, the share of wealth held in property is 36%. 

But they are often overlooked during the divorce process, which could lead to retirement poverty for some ex-spouses. 

As a pension is usually held in one spouse’s name and is associated with their employment, there is often an incorrect assumption that it isn’t shareable.

Women - particularly those who are older - are likely to have smaller pensions, and will therefore lose out if pensions aren’t shared. 

While the average 64 to 69-year-old married man has £260,000 in private pension savings, an average woman of the same age has just £28,000, according to research by the University of Manchester and the Pensions Policy Institute.

• Find out more: 8.3m workers at risk of retirement poverty

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Pension sharing orders fall

Just 22% of divorces in England and Wales included an application for a pension sharing order in the first three quarters of 2022, compared with 33% in the same period in 2021, according to a Freedom of Information (FOI) request to the Ministry of Justice by Nockolds solicitors.

This is despite the number of online divorces increasing - there were 100,214 divorce petitions submitted online in the first three quarters of 2022, more than the whole of 2021 (89,376).

• Find out more: women need to work till 83 to close the gender pension gap

More divorces without legal representation

The data in the FOI request also found that almost 70,000 online divorce applications were made without legal representation between 1 January and 30 September last year, compared to just 30,438 by solicitors on behalf of divorcing spouses. 

The law firm said many spouses may be overlooking certain finances during the DIY divorce application. 

Francesca Davey, principal associate in the family law team at Nockolds added: ‘While a DIY divorce can be cost-effective when couples divorce amicably and they are relatively young, skimping on legal representation can be a costly mistake for many people.

‘It is easy to overlook financial remedies, or apply for remedies which are inappropriate, when making DIY divorce applications.'

'The online process does not provide guidance or suggest which remedies are appropriate for different circumstances, and once a divorce is finalised it is very rare for a judge to reopen it - even if a serious mistake was made.’

In response, a spokesman from the MOJ said: ‘Our changes to divorce law have given couples more time to resolve their issues and a greater chance of doing so amicably.

‘Our new online divorce system provides information about financial matters including pensions to support families through financial proceedings, which are separate.’

• Find out more: 10 things you need to know about divorce law changes

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‘No-fault divorces turbo-charging DIY divorces’

In April last year the law was changed to allow couples to divorce without needing a reason to do so, called ‘no-fault divorce’. 

Nockolds believes this change in the law is ‘turbo-charging hasty DIY divorces’, which could lead to spouses not considering all the financial remedies available to them. A pension sharing order is one example of a financial remedy, along with things such as spousal or child maintenance. 

One of the changes means the person applying for divorce must serve the application to their partner within 28 days of it being issued. If this person is not served until the 28th day, then they only have 16 weeks until a Conditional Order is made.

This could limit the time they have to get financial advice, and they could end up being blindsided by the divorce.

Some experts believe there must be stronger nudges towards legal advice during the divorce application process, to ensure that people understand their rights as soon as possible and don’t stay silent because of the emphasis on amicable separations.

In May 2022, we surveyed 948 Which? members who had divorced since the law changed, which revealed 71% didn’t include pensions in their financial settlement, despite UK courts having allowed pension sharing orders since 2000.

• Find out more: seven in 10 divorcing couples don't share pensions

How spouses can share their pensions

There are a few options for how pensions can be split during a divorce:

Pension sharing order

A pension sharing order means a percentage of one person's pension is transferred to the other.

The advantage of this is that assets are divided at the point of divorce, which means the applicant can pay a lump sum into their own pension pot or start paying into a new scheme.

However, you may need financial advice to improve your chances of getting a fair split - which comes at a cost. What's more, a pension scheme provider can only divide up the pensions by court order.

In England, Wales and Northern Ireland pension sharing will apply to the entirety of an individual’s pension pots. In Scotland, only the value of the pensions you have built up during your marriage or civil partnership is taken into account. 

• Find out more: how much do I need to retire?

Pension offsetting 

Pension offsetting is where one person keeps their pension in exchange for giving up another asset, such as the family home.

Although this approach is relatively straightforward and allows for a clean break, the partner who forfeits the other’s pension may lose out in the long run. 

Even if a spouse has built up just a modest final salary pension, there’s a good chance this will still be worth considerably more than the average UK house. 

• Find out more: selling your house during a divorce 

Pension attachment/earmarking order

This involves one person paying an income or lump sum to the other when they start taking their pension. 

This doesn’t allow for a clean break as the attachment order is essentially a form of maintenance paid to the former spouse, but it does mean the pension holder can retain control over their choice of investments and when the payments are made.

The partner receiving the payments can't receive anything until the pension holder retires, and they also risk the loss of future income - for instance, if the person with pension rights dies before retiring.

• Find out more: 6 questions to ask about your pension in 2023

This article was updated on 9 March with a spokesperson quote from the Ministry of Justice.