David Downie

David Downie
Managing Director – SSAS & Actuarial

In 2020, the Divorce, Dissolution and Separation Act came into force. This act allowed married couples in England and Wales to start divorce proceedings without assigning blame to either party.

Almost immediately, divorce applications began climbing. Ministry of Justice data reveals that between April and June 2022 there were 33,566 divorce applications, the majority of which were sole applicants – representing a ten year high.

But what does this new act actually mean, especially for pensions in divorce settlements?

According to legislation, neither partner needs to be the cause of the marriage or civil partnership breaking down. There no longer needs to be a reason – be it adultery or desertion – for the ‘irretrievable breakdown’ of a marriage, and so neither party needs to be responsible.

A big question this act bring about is how to manage and ensure a fair distribution of pension benefits within a financial settlement in divorce, as proceedings often start quickly and go through the courts even faster.

The rise of the silver divorcer

Since 1990, there has been an increasing trend in older couples seeking divorce. According to US ‘think-tank’ Pew Research Centre, over-50’s divorce rates have doubled in the last 25 years, while divorces for over-55’s have increased threefold.

Divorce amongst older couples is a lot more complicated, as there is not only a ‘family’ home to divide, but pension assets, which are often worth more than the house in value. As such, divorce pension sharing can be complicated; depending on the careers of those involved, there is every likelihood you could be looking at a salary pension worth up to £800,000.

So, how can you ensure you reach a fair split?

The answer comes in the form of actuarial support. An actuary behaves as an unbiased accessor, exploring options on how a pension in divorce can be split fairly to assist both the couple and the court.

There are several factors they may take into account, including:

1. Age. The age difference between spouses can distort the distribution of pension assets – as such benefits are rarely split 50:50. An actuary will work to outline some options which will achieve the fairest split and equal income.

2. Government sponsored schemes. The transfer value of some schemes, like the Teacher’s Pension Scheme, can often be insufficient. An actuary assessing pension in divorce will strip everything back and explore options to remove any distortion between transfer values.

Any couple seeking a divorce should get themselves hooked up with a good financial advisor. They will be able to work with an actuary to offer financial advice in the divorce settlement should any complexities arise in the pension assets.

When exploring a financial settlement in divorce, a financial advisor is also the one best placed to walk their clients through the actuary’s report and the options available to them. They will be able to make the situation clearer using cashflow modelling, to show exactly what each party will receive monthly and if that meets their income requirements. And can suggest whether it may be an option for a client to become a member of their ex-partner’s scheme, which can give the new member pension entitlement from the day they join.

Whatever the options discussed for financial settlement in divorce, it is always beneficial to have a professional explain it to you.