How much money will you will need to live on later in life?
Divorce is undoubtedly one of the most difficult subjects to talk about. When relationships come to an end, there are so many things to consider – children, home and support are naturally the first things you would focus on. In fact, when you begin the process of separating a shared life, the sheer number of things to deal with can seem very daunting. And the cost of divorce can have a lasting impact on your plans for later in life.
What is likely to be a divorcing couple’s most valuable asset? The family home will spring to most people’s minds first. But with the value of final salary pensions soaring that forgotten ‘defined benefit’ income could well be the biggest single asset in the relationship. A new study* has revealed that divorcees retiring this year can expect to receive up to 18% less in retirement income. While it may not be the first thing you need to think about, a pension fund is likely to be one of the most difficult assets a couple will have to split in the event of a divorce, so it’s best to start early.
Average expected annual income:
That difference means that divorcees can expect to receive up to 18% less in retirement income. Divorce can have a huge financial impact on people’s lives. Many may not realise that the cost of divorce can last well into retirement, as divorcees expect retirement incomes of nearly £4,000 less each year than those who have never been divorced. And with the Office for National Statistics** confirming that divorce rates are increasing for men and women over 55, it is an issue likely to affect a growing number of the baby boomer generation. The stress of getting through a divorce can mean people understandably focus on the immediate priorities like living arrangements and childcare, but a pension fund and income in retirement should also be a priority. Before planning how to separate your pension assets, you may want the different pensions you and your ex-civil partner or spouse have. Then you can start to explore the options.
Across the UK, there are three core options to consider when you are separating pension assets:
Some of these options need to be administered by the courts, and not all of them will be suited to your individual circumstance:
Pension Sharing Order
Pension sharing is one of the options available on divorce or the dissolution of a civil partnership. Each party owns a share of the pension fund but is able to decide what to do with their share independently. This provides a clean break between parties, as the pension assets are split.
Pension Attachement Order
This redirects some or all of the pension benefits to you or your ex-civil partner or spouse at the time of payment. When the person who owns the pension receives their benefits, the pension provider makes a payment to their ex-civil partner or spouse. With this option, you don’t get the clean break as you would from the pension sharing order.
With pension offsetting, the total assets are considered and then divided up. For example, if your ex-partner has a large pension pot, they may decide to keep this, as you may agree to receive an asset of similar value (for example, the house). Divorce can be a difficult and uncertain time, and the retirement you have planned may differ from the reality ahead.
At the most difficult times we're here to help.
A pension fund is one of the most complex assets a couple will have to split, so anyone going through a divorce should seek legal and professional financial advice to help them do so. For many more couples, the increase in value of pensions means that it is often the largest asset. It goes without saying that this advice is crucial as early as possible in any separation where couples have joint assets.
To find out how we can help, please contact Helen Tansley on 01132 211332 or email at firstname.lastname@example.orgContact Helen
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