Since changes to the State Pension came into force in 2016, how have these affected divorcing couples?
The Pensions Bill took effect from 6 April 2016 and included changes to the State Pension. The main change related to the introduction of a single-tier State Pension providing a flat rate, which is currently £159.55 per week if you have 35 years of National Insurance contributions to your name.
So, what has been the impact?
The government justified the changes partly on the basis of inequalities in the existing system, including concerns that some groups, in particular women, have less opportunity to save for a decent income in retirement. However, the changes have increased such inequalities in the event of divorce. Anyone who was already claiming a State Pension or who reached State Pension age before 6 April 2016 will not be affected by the changes.
Treating pensioners as individuals, as this legislation does, rather than as couples who have worked together for a common interest, will result in increasing the inequalities of the wife invariably as the home-maker and child-rearer in the event of a relationship breakdown.
Previously, it was possible on divorce for a spouse, usually the wife, to substitute her National Insurance records for that of her former spouse if he had made a greater contribution. This would generally ensure that both parties would have the same basic State Pension on divorce.
However this ‘substitution’ is no longer available for those reaching pension age after 6 April 2016. This means that one party, usually the wife, will be left with a lower state pension income on retirement if she has taken time out to raise a family for example or has only worked part time for part of the marriage.
So what does this mean for those divorcing now or in the future?
- The current law does not allow pension sharing orders in relation to the basic State Pension, only the additional or second tier State Pension (as it then was).
- In order to qualify for a full state pension now it is necessary to have 35 years of National Insurance contributions history/credit in your own right. For every year under 35 you will lose 1/35th of the full amount payable.
- Divorce lawyers need to examine the disparity between the state pension entitlement of a husband and wife and consider how this should be factored into any settlement.
- It is vital for divorcing couples especially to quantify their state pension entitlement. This can be done by submitting form BR19 to the Pension Service.
What can be done to address this issue?
For many years, solicitors have been advising on the importance of considering pension issues on divorce. It is quite common for there to be a significant disparity in the value of private pensions of a husband and wife and expert advice is required on how such differences should be addressed.
Further legislation introduced in the 1990s allows for such pensions to be shared as between divorcing couples via pension sharing orders. It is not possible to divide or ‘share’ your spouse’s basic state pension on divorce. The changes to the state pension unfortunately only serve to widen the gap between the retirement income of a husband and wife on divorce.
This highlights the need for professional advice to ensure that a fair outcome is achieved in any financial settlement. This assumes of course that there are other assets which can be used to compensate the disadvantaged spouse on divorce.
The Lester Aldridge family team deal with these and other issues on a regular basis and are frequently instructed by clients regarding divorce proceedings.
If you would like to discuss any aspect of separation, arrangements for your children or wish to protect your assets prior to getting married, contact the family team on 01202 786161 or email [email protected]