Pensions Are Being Overlooked in Divorce. That's Costing People Their Retirement
Pensions Are Being Overlooked in Divorce. That's Costing People Their Retirement
General information only. Not legal advice. Always seek advice tailored to your circumstances.
58% of people going through divorce never discuss pensions at all.
That statistic sits at the centre of a quiet financial crisis. Pensions are often the second-largest asset in a marriage, sometimes worth more than the family home. Yet the majority of divorcing couples ignore them entirely during settlement negotiations. By the time people realise what they've done, the damage is already done.
This is not a small oversight. The choice you make about your pension during divorce can determine whether you retire in comfort or financial strain. The pension rights you waive today are pension rights you cannot recover later.
Why This Happens
Divorce is overwhelming. Your attention is on the house, the children, the immediate logistics of separation. A pension is abstract. It does not need feeding or schooling. It will not become homeless. It sits in the background, earning quietly, and feels like a problem for future-you.
Solicitors and mediators often move fast. They settle the house, agree on maintenance, file the paperwork. Pensions get mentioned in passing, sometimes not at all. If one party has a pension and the other does not, it can feel like dividing the spoils takes priority over dividing future income.
Litigants in person, particularly those without legal representation, often do not know that pensions count as matrimonial property at all. The Matrimonial Causes Act 1973 treats them exactly as it treats the house or savings. Section 25 requires courts to consider all financial resources, including pension benefits either party will lose the opportunity to acquire as a result of divorce.
But knowing the law and acting on it are different things.
The Financial Reality of Overlooking Pensions
When a couple ignores pensions during divorce, the consequences unfold over decades. A woman who waives her share of her husband's pension to keep the family home may find that 30 years later, her housing costs are paid but her weekly income in retirement is half his.
Research from Which? found that only 15% of divorcing couples include pensions in their financial settlement. This is not because pensions are small or unimportant. It is because they are abstract, complicated, and easy to defer.
The consequence is not abstract. Someone who loses access to a partner's pension during their working years has no opportunity to build alternative retirement savings. Years of lost earning potential in a pension pot compound. Someone who gives up pension rights to keep a house may end up house-poor and pension-poor.
The Which? research also found that divorced women are disproportionately affected. A woman who does not work or earns less than her partner may accept an unfair division of housing assets to avoid difficult negotiations about pensions. She may not understand that the house does not keep you alive once you reach pension age. Income does.
How Courts Treat Pensions as Matrimonial Assets
The starting point in law is straightforward. When a marriage ends, the court assumes that assets acquired during the marriage should be shared fairly. This includes pensions.
Section 25 of the Matrimonial Causes Act 1973 sets out the factors a court must consider:
- the income, earning capacity, property and other financial resources of each party
- the financial needs and responsibilities of each party
- the standard of living enjoyed by the family before the breakdown
- the age and state of health of each party
- contributions made to the welfare of the family, whether financial or non-financial
- conduct (though this is rarely taken into account in modern practice)
- the loss of pension benefits that one party will suffer on divorce
That last point is critical. The law explicitly requires the court to think about pension rights that will be lost. If you are a woman who gave up career progression to raise children, your loss of pension rights is a legal factor in how assets are divided.
Yet if you do not raise pensions in your own settlement, the court will not raise them for you. The law provides the framework. You have to use it.
The Three Ways Courts Divide Pensions
When pensions are addressed, there are three main options.
1. Pension Sharing
A Pension Sharing Order (issued under section 24B of the Matrimonial Causes Act 1973) formally splits the pension. A percentage or amount of one person's pension is transferred into the name of the other party. This creates two independent pension pots.
If the pension is worth £200,000 and the court orders a 50/50 split, each party receives a £100,000 pension credit. The receiving party can then transfer that credit into their own pension arrangement (a SIPP, personal pension, or their own workplace scheme).
Pension sharing is clean. It creates a final break. The recipient has control over their own pension. They are not dependent on their ex-partner continuing to contribute or behave responsibly with the fund.
Pension sharing works well when the pension is substantial and the parties have similar life expectancy and retirement plans. It can be complicated and costly when the pension is in payment (already being drawn as income) or when one party is close to retirement.
2. Pension Offsetting
Instead of splitting the pension, one party keeps their pension and the other party receives additional assets elsewhere. If one party receives the pension pot, the other party might receive the house, or a larger share of savings, or a combination of assets that is deemed financially equivalent.
Offsetting avoids the administrative complexity of splitting a pension. But it can be unfair. You are comparing different assets: a pension (which provides tax-advantaged, protected income in retirement) against property (which requires maintenance and may not produce income). The values may look equal on paper but behave very differently over 30 years.
Offsetting also creates dependency. If the person receiving non-pension assets later finds their circumstances change (loss of employment, business failure, property damage), they cannot access their ex-partner's pension to recover. The pension remains untouched while the offsetting assets deteriorate.
3. Pension Attachment or Earmarking
This is now rarely used, but it remains an option. Part of one person's pension is earmarked for payment to the other party when it comes into payment. For example, if the husband's pension is worth £200,000, the court might order that when the husband draws his pension at age 65, half of it is paid to the wife as long as she remains unmarried.
Earmarking has serious disadvantages. The receiving party has no security and no control. If the pension holder dies, the earmarked income stops. If they retire later than expected, the receiving party waits longer. If they reduce their pension to improve their own retirement, the earmarked portion reduces too. It is not a clean break.
A Scenario: The Cost of Overlooking Pensions
Sarah and Mark married at 25. They were together for 20 years. Mark worked as an engineer and built up a pension worth £300,000. Sarah worked part-time as a primary school teacher and took career breaks to raise their two children. Her pension is £80,000.
During divorce negotiations, they moved quickly. Sarah wanted the family home. Mark was willing to let her have it. The house was worth £400,000 with £200,000 of mortgage outstanding, giving £200,000 of equity. Mark also had savings of £100,000. Sarah had savings of £20,000. Mark's pension was £300,000. Sarah's pension was £80,000.
The total assets were approximately £680,000. If divided equally, each would receive £340,000.
Sarah negotiated to keep the house. Mark paid off the mortgage and transferred his £100,000 of savings to Sarah. Sarah walked away with £200,000 (her half-equity in the house) plus £100,000 (Mark's savings) equals £300,000. Mark kept his pension (£300,000) and his savings (£20,000) equals £320,000.
On the face of it, this looked roughly equal. Sarah got the house and cash. Mark got his pension. The negotiation was quick and relatively painless.
But that was at age 45.
At 55, Sarah's mortgage was paid off but she had made no additional savings. Her job was still part-time. Her pension had grown modestly to £110,000. She had no other assets.
At 55, Mark's pension had grown to £450,000 through employer contributions and investment returns. His earnings capacity was unchanged.
At 65, when they both retired, Mark's pension generated approximately £18,000 per year. Sarah's pension generated £4,400 per year. Mark also owned rental property (purchased from his continued savings). Sarah owned the house but it was now expensive to maintain and the area had declined.
On paper, the 20-year-old settlement looked fair. In retirement, Mark was financially secure and Sarah was not.
The error was overlooking the compounding effect of pensions. A £220,000 difference in pension wealth at divorce compounds over 20 years. By retirement, it becomes a £340,000 difference, with real consequences for income security.
What You Must Do
If you are divorcing and you have access to pension information, you must address it.
Step one is to get the valuations. Every pension scheme can provide a transfer value on demand. Request it formally. Do not assume you know what a pension is worth.
Step two is to decide: are you keeping your pension, offsetting it, or sharing it? Do not decide without understanding the tax implications. The person receiving a pension credit through sharing has to establish a new pension arrangement. The person offsetting a pension gives up future security for present assets. These are different choices with different outcomes.
Step three is to include your decision in a consent order (if you are agreeing) or raise it as an application if you are not. A financial order that does not address pensions is incomplete. You can revisit other assets later if circumstances change, but pension rights are difficult to recover once they are waived.
If you are a litigant in person, do not assume pensions are too complicated or too specialist. Understand the basics. Request the valuations. Get advice from MoneyHelper or a pension specialist if you need it. The cost of specialist advice is far smaller than the cost of overlooking a £200,000 asset.
What Happens If You Do Nothing
If you do not address pensions during divorce, your financial order will not address them. Once your divorce is final, it becomes very difficult to reopen the settlement. The court will not revisit a financial order on the basis that you overlooked an asset.
Some pension rights cannot be recovered at all. If a pension scheme requires formal notice of a pension sharing order before the divorce is finalised, and you fail to provide it, the pension holder keeps the full pension. You have no legal claim to it.
Your ex-partner can also waive their claim to your pension if it is not formally addressed. You do not automatically owe them a share just because you are divorced. The settlement has to say so.
For state pension entitlements, there are some limited circumstances under which a divorcee can claim a share of their ex-partner's contributions. But the rules are complicated and the amounts are usually small. Private pensions are straightforward: if you did not negotiate a share during divorce, you do not have one.
Moving Forward
Pensions require the same attention as property and maintenance. Treat them as a core part of your financial settlement, not an afterthought.
Request valuations early. Understand your options. Make an informed choice. Document that choice in a financial order.
Do not assume someone else will raise pensions on your behalf. Solicitors raise them, yes, but if you are in an amicable agreement, both parties may move quickly without thinking. Mediators guide the process, but they cannot force you to consider something you are not prioritising.
The law is clear: pensions are matrimonial assets, and Section 25 requires courts to consider the pension rights you lose. But the law does not protect you from your own oversight.
Next steps:
For information on financial orders and how to apply for one, including how pensions are addressed, visit: Money and property when you divorce or separate
For free specialist advice on pensions and divorce, contact MoneyHelper (which includes Pension Wise): moneyhelper.org.uk or call 0800 138 3944 if you are over 50.
For legal advice specific to your circumstances, consult a family law solicitor or your McKenzie Friend.
Sources:
Which? Survey on Divorce and Pensions (2022): Only 15% of divorcing couples include pensions in their financial settlement. 58% of respondents said pensions were not discussed.
Matrimonial Causes Act 1973, Section 25: The court's duty to consider all financial resources including pension benefits lost on divorce.
Welfare Reform and Pensions Act 1999: Established pension sharing as a legal mechanism for dividing pensions on divorce.
MoneyHelper (Money and Pensions Service): Pensions and divorce guidance and free specialist appointments.
GOV.UK: Money and property when you divorce or separate.