Words: NOW: Pensions
Posted: 05 August 2020

By Jane Portas, Co-founder Insuring Women’s Futures and author of financial risks in life reports1

Divorce and separation can strain both men’s and women’s finances. However, it is often women who feel the most long-term financial pain. With women’s lifetime earnings less than three fifths’ of men’s – significantly the result of the gender pay gap and the motherhood and caring penalty – there is a five-fold gap in married men’s and married women’s median pensions pots. However, while marriage protects spouses, and divorcing couples enjoy pension sharing rights, only one in seven divorces involving pensions actually result in sharing. It seems that couples are not only not talking about their long-term pensions planning when they are together, nearly three quarters do not discuss pensions at all when they divorce.

The gender pension divorce gap

Today, the average age for divorcing couples is the mid 40s, although increasing numbers of “silver splitters” are separating in their 50s.  By this stage in life, many mothers’ careers have been curtailed due to family caring and part-time working.  As many as one in seven mid 40s women are caring for children and an adult, and in the majority of break ups, women take on the role of primary carer – nine in ten of lone parent households are female headed.  This all puts extra strains on women’s ability to earn (indeed the gender pay reaches 25% in the 50s2), creating financial pressure and limiting pensions savings, often leaving divorced women with inadequate retirement provision in later life.

The median pension pots of divorced women are one third those of divorced men.  However, a deep dive into the issue by NOW:Pensions in collaboration with the Pensions Policy Institute, evidences how life after divorce further exacerbates the gender pension gap.  By the time divorced women retire their median pension pots are a mere one quarter of divorced men’s.  The study also found divorced women’s retirement income is 42% smaller than the UK average3.

How COVID risks exacerbating the gender earnings and pension gaps

COVID-19 is impacting the financial life journeys of men and women of all ages.  In particular, the combined effect of women’s lack of job security and childcare challenges as a result of the lockdown means there is a very real risk that the gender pay gap and women’s lifetime earnings gap will increase as a result of COVID-19.

Indeed, it has already been reported since the lockdown that women have seen their income reduce by 26% (£309) a month (18% or £247 for men), widening to £405 for women (and £309 for men) in two-parent households where both are employed, and equating to a 15% rise in the gender pay gap4. With 150,000 less childcare places projected5, mothers are worse affected, with indications they are 47% more likely to have permanently lost their job or quit, and 14% more likely to have been furloughed6.

Workplace pensions savings are a factor of earnings, meaning COVID-19 has the potential to widen the gender pension gap too, and the financial risks are heightened for women whose relationships break up.

Impact of COVID on relationships and changes in divorce processes

The challenges faced through lockdown have further accentuated the fragility of some relationships.  Anxiety levels amongst married and civil partnered couples increased to 39% from 19% end 2019,7 and early signs are that divorce rates may be set to increase.  One legal services provider reported a 42% rise in divorce inquiries during lockdown through to mid-May (compared to 2019)8.

With over one quarter of divorces now online and the prospect of “quickie no-fault” divorces, there is a risk pensions sharing could be further overlooked with women continuing to miss out on their share of pensions on divorce. An enduring pay gap and lack of accessible childcare will add to divorcing women’s woes, and make it harder for divorcees to save for their retirement. 

Could COVID lead to rising cohabitation?

It’s not just married couples who are feeling exposed as a result of the pandemic.  As many as 64% UK weddings are expected to be affected by COVID-19 in 2020, with an estimated 29% weddings cancelled during the initial lockdown and the majority (nearly three quarters) uninsured9. Could COVID-19 lead these and possibly more couples to choose cohabitation and not get married at all?

As long as women continue to earn less and care for free, the lack of cohabitation financial rights leaves them exposed later in life if they don’t “tie the knot” and subsequently split up.  Worryingly, in 2019 ONS reported almost half of people do not realise that cohabitees do not enjoy the same right as marrieds.

Addressing the gender pension and divorce gaps – what you can do

Relationships are seldom entirely plain sailing, and whether making up or breaking up, talking about money and pensions in both the long and the short-term should be a priority for all couples.

Those considering cohabiting would be wise to make sure that their financial planning reflects their relationship rights.  Couples embarking on divorce will benefit from making themselves familiar with their respective pensions savings, check they are fully disclosed on divorce Form Es, and seek appropriate guidance or advice.  For divorcing women in particular, considering future life journey expectations (earnings and caring) will help provide a long-term view of financial settlements. For further information, hints and tips, see the guide I developed on the Insuring Women’s Futures website, 6 Moments that Matter – how to secure your financial future.

Employers and pension trusts can also help by analysing their pensions gaps, and designing their pensions communications and wellbeing activity to prompt staff and members to review pensions saving and retirement planning in the context of their relationships.  This includes raising awareness of the different pensions’ rights for marrieds and cohabitees, and considerations for those experiencing break ups.  Highlighting the impact on pensions of reduced hours and part-time work will also help inform retirement provision planning decisions, and support closing the gender pension gap.  Further insights and recommendations including for policymakers, advisers and guidance bodies – in particular regarding the divorce process and access to advice – are contained in Living a financially resilient life in the UK.

About the Author

Jane Portas has spent her career in professional services and as a Partner at KPMG and recently PwC, and is a Chartered Accountant with over 30 years’ financial services and business advisory experience.  She has advised many leading insurance businesses to implement strategic and regulatory business change and optimisation programmes, including risk management and solvency, governance and customer outcomes.

Jane is a co-founder of Insuring Women’s Futures, a market-led programme under the Chartered Insurance Institute, aimed at improving women’s and wider society’s financial resilience. She is the author of it’s manifesto and three financial risks in life reports underpinning the programme (including “Solving Women’s pension deficit to improve retirement outcomes for all”), and a financial wellbeing guide, available at insuringwomensfutures.co.uk.  Since September 2019,  Jane has been a member of Women’s Business Council.  She is also a Committee Member of Insurance Supper Club.

1 See reports including “Solving Women’s pension deficit to improve retirement outcomes for all” and “Living a resilient financial life in the UK”, a ten-point manifesto for change incorporating the work of a 150-strong Market Task Force at  www.insuringwomensfutures.co.uk.

2 Gender pay gap in the UK: 2019, ONS

3 Now: Pensions and Pension Policy Institute June 2020

4 Turn2us Press Release 04/05/2020: Coronavirus pandemic widens the gender gap

5 The Guardian, 24 Apr 2020, UK childcare industry ‘crushed’ by coronavirus crisis

6 IFS and UCL 27 May 2020, UCL Press release, Parents, especially mothers, paying heavy price for lockdown

7 ONS Coronavirus and anxiety, Great Britain: 3 April 2020 to 10 May 2020

8 Co-op Legal Services, 1 June 2020, Love lost in lockdown as Co-op reports a surge in divorce enquiries

9 Evening Standard April 2020, Bridebook data

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We're on a mission to fight for #FairPensionsForAll

We’re fighting for a fair pension system that benefits everyone. By highlighting inequalities and campaigning for change, we’re helping pension savers get the retirement they deserve. Sign up for email updates on pension equality.