Elderly divorcees could end up much poorer in retirement

The number of brides and grooms aged 65 and over has risen by 46% in the past ten years, according to figures from the Office for National Statistics. (The over-65s as a proportion of the population is up by a fifth over that period.) The divorce rate has risen for older people, too – among the over-65s it went up by 23% for men and 38% for women between 2005 and 2015.

Pensions are an increasingly important element of divorce settlements, especially for older couples who may have less time to build up new retirement savings. Research shows that couples who get divorced often end up worse off in retirement: married individuals retiring this year can expect their pension pots to generate an average annual income of £19,400, according to figures published by insurer Prudential. Those who have been through a divorce will have an income of £16,300.

With private pensions, divorcing couples have three options. Under “pension sharing”, one partner may be given a share of their former spouse’s pension savings, which they can transfer into a pension of their own. Alternatively, the value of the pension may be offset against other assets in the divorce – so one partner gets the pension savings and the other gets the family home, for example. Under “pension earmarking”, one partner gets a future claim on a share of the other’s pension once they start claiming it. For older couples, options one and two are likely to be of most use, but it is important to take independent financial advice – especially to ensure one partner isn’t left without an income, even if they get a bigger share of other assets from the marriage.

For the state pension, different rules apply depending on whether you reached the state pension age before or after 6 April last year, when the new single-tier state pension replaced the basic state pension, so you should check your entitlements carefully (see below).

There are two other important considerations. Many occupational pension schemes pay benefits to the surviving spouse on the death of the scheme member. That ends when a couple divorce, so the vulnerable partner must adjust their plans accordingly. And couples must update their details with pension providers, or benefits could be passed to the wrong person.

Women should take note of NI changes

State pensions can’t generally be shared between divorcing couples. But under the old basic state pension system, partners were generally able to use their former spouses’ national insurance (NI) contributions record to increase their own basic state pension. This was a big help to many women who took time out of work to raise children, for example, and so hadn’t built a full pension entitlement of their own.

However, since April 2016, the state pension no longer operates this way. There are no provisions for couples to share entitlements on divorce; each partner has to make a claim on the basis of their own contributions once they reach retirement age. For couples divorcing in the future, this will be an important consideration.

However, those already divorced but yet to retire should also think about this. Divorce settlements agreed under the old system will typically have been made on the assumption it would continue to apply. Divorcees – typically women – may be in for a shock when they reach retirement and find they have no claim on their former partner’s NI contributions, even though they may have received a less generous divorce settlement because the courts expected otherwise.