Pension: Expert gives advice on preparing for retirement
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Pensions do not tend to be thought about by many people at length, however, experts are urging a change to this approach. This is particularly the case for women who could be left out of pocket in later life, particularly if they decide to divorce. Research dating back to the 1990s shows that on retirement some 40 percent of women were living in poverty.
While many reasons were cited for this, there was a stark disparity noted as most men generally speaking had a far better pension provision, with less living in old age poverty.
Jim Richards, Senior Associate at Winckworth Sherwood, analysed the reasons why this could arise, especially in the case of divorce.
Mr Sherwood stated that generally men and women tend to have different priorities upon divorce, with women prioritising the home over pension provision, and men focusing on retirement savings above the home.
Divorced women, therefore, may end up with far less in retirement money than their divorced husbands who can be set up soundly for their later lives.
For this reason, pension sharing orders on divorce were implemented in 2000 to tackle the issue, but the policy has not necessarily worked out well.
Research from Manchester University showed in only 12 percent of divorce settlements were pension sharing orders made.
Consequently, divorced women find themselves in a challenging financial state when thinking ahead to life after work.
The situation, however, could be remedied, and women are being urged to take action on the matter.
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Mr Richards explained: “This really is a situation where greater consideration needs to be given to the position that you will be in on retirement.
“Financial advisers can provide projections in terms of income, cash flow and so forth which may make difficult reading.
“However, this is simply not an issue which you can hide from. Like it or not, this will come knocking at your door.
“Life expectancies broadly continue to rise and therefore the time that you will experience retirement income is likely to be longer than previously envisaged. Additionally, women tend to live longer than men statistically speaking.
“For these reasons, it is imperative that if pensions are a significant resource within a divorce settlement, time is taken to consider how this should be shared fairly.
“Fairness means providing equality of income in retirement and reflecting the differing contributions which are made by the respective parties during a marriage.
“The fact that one person has worked, generally the husband, while a wife may have given up her career, raised children, and not contributed to a pension fund is something which the courts can, and will, take into account if a financial application is made.”
For this reason a pension sharing order could be the best option to divide assets in a suitable way.
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It takes money from one fund to create a separate fund in the other person’s name, as if they had actually paid into the fund to begin with.
People will then be able to draw down according to the rules of the scheme they choose to invest in.
However, Mr Richards has stressed that to achieve this outcome, it is vital individuals take financial advice.
This is because the matter can often be particularly complex, and Britons will often need guidance through this minefield.
As a whole, it will be important to consider a number of options to arrive at the most appropriate and fair solution.
Mr Richards concluded: “Failing to do this can result in the level of poverty which has been described at length for many years now and that can be avoided if the circumstances allow it.”
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