For a comfortable retirement, don't divorce
Divorced people expect to be £2,600 a year worse off when they retire than those who haven't had a marriage (or civil partnership) breakdown, according to new research from Prudential UK.
Research from the Pru's ongoing 'Class of 2013' study of the financial plans and expectations of people planning to retire this year shows that divorcees anticipate an annual income of £13,800, compared with £16,400 for those who haven't divorced.
The research also found divorced people are less likely to have their own private pensions, more likely to retire still saddled with mortgages and credit card debts, and less likely to expect to leave wealth for their families. Only a third believe they have saved enough for retirement.
Around two in five marriages end in divorce, most commonly during the couple's early 40s. The number of divorces in the UK has been falling over the past 20 years - to around 130,000 in 2011, from more than 180,000 in 1993.
However, divorces among the over-60s continue to increase in number: in 2011 16,000 people aged 60-plus divorced, almost twice as many as 10 years earlier, according to the Office for National Statistics.
The Pru's findings are unsurprising, given that divorcees have to run two properties instead of one, and may have had to pay substantial legal costs in the process of splitting up. For middle-aged divorced people trying to manage on a single or reduced income, contributing to a pension often slips down the list of priorities.
Indeed, Carl Lamb, managing director of financial adviser Almary Green, believes the Pru's figures underestimate the extent to which divorced people lose out on retirement income.
"Reductions in annual retirement income for those who are divorced can be as high as 30 per cent, compared with those who have never had a marriage breakdown," says Lamb.
There are also financial implications in the process of splitting existing pension pots when a couple splits up.
"A pension fund is one of the largest and most complex joint assets to be split, so advice from specialists, including a retirement expert or financial adviser, can help ensure that decisions made at that time are to the benefit of both parties' eventual retirement incomes," comments Clare Moffat, pensions expert at the Pru.
There are two main options for dealing with a pension during divorce. In most cases, says Richard Collins, partner at the family law firm Charles Russell, the pension holder (usually the husband) keeps the whole thing and the spouse takes other assets in lieu of a share of the fund.
The main alternative is pension sharing, where the spouse is given a chunk of pension fund and either leaves in the same scheme or transfers it to another one.
Either way, says Collins, it's important that people getting divorced get support and education to help them manage their income and assets once they have split up.
This article was written for our sister website Money Observer
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