Breaking Up is Hard to Do: How much money will you need to live on later in life?

Divorce is undoubtedly one of the most difficult subjects to talk about. When relationships come to an end, there are so many things to consider – children, home and support are naturally the first things you would focus on. In fact, when you begin the process of separating a shared life, the sheer number of things to deal with can seem very daunting. And the cost of divorce can have a lasting impact on your plans for later in life.

What is likely to be a divorcing couple’s most valuable asset? The family home will spring to most people’s minds first. But with the value of final salary pensions soaring, that forgotten ‘defined benefit’ income could well be the biggest single asset in the relationship.

A new studyhas revealed that divorcees retiring this year can expect to receive up to 18% less in retirement income. While it may not be the first thing you need to think about, a pension fund is likely to be one of the most difficult assets a couple will have to split in the event of a divorce, so it’s best to start early.

Average expected annual income:

  • Never suffered a marriage breakup – £21,400
  • Divorced – £17,600

That difference means that divorcees can expect to receive up to 18% less in retirement income.

Divorce can have a huge financial impact on people’s lives. Many may not realise
that the cost of divorce can last well into retirement, as divorcees expect retirement incomes of nearly £4,000 less each year than those who have never been divorced. And with the Office for National Statistics[ 2] confirming that divorce rates are increasing for men and women over 55, it is an issue likely to affect a growing number of the baby boomer generation.

The stress of getting through a divorce can mean people understandably focus on the immediate priorities like living arrangements and childcare, but a pension fund and income in retirement should also be a priority. Before planning how to separate your pension assets, you may want to consider how much money you think you will need to live on later in life.

SO, WHAT ARE YOUR OPTIONS?

It’s never easy when things come to an end, but support and advice can make the journey clearer. So ,what are the options available when you are ready to look at separating your assets? Firstly, it is important that you both list the different pensions you and your ex-civil partner or spouse have. Then you can start to explore the options.

Across the UK, there are three core options to consider when you are separating pension assets:

  • Pension sharing orders
  • Pension attachment orders (called ‘pension earmarking’ in Scotland)
  • Pension offsetting

Some of these options need to be administered by the courts, and not all of them will be suited to your individual circumstance.

PENSION SHARING ORDER

Pension sharing is one of the options available on divorce or the dissolution of a civil partnership. Each party owns a share of the pension fund but is able to decide what to do with their share independently. This provides a clean break between parties, as the pension assets are split.

PENSION ATTACHMENT ORDER

This redirects some or all of the pension benefits to you or your ex-civil partner or spouse at the time of payment. When the person who owns the pension receives their benefits, the pension provider makes a payment to their ex-civil partner or spouse. With this option, you don’t get the clean break as you would from the pension sharing order.

PENSION OFFSETTING

With pension offsetting, the total assets are considered and then divided up. For example, if your ex-partner has a large pension pot, they may decide to keep this, as you may agree to receive an asset of similar value (for example, the house).

Divorce can be a difficult and uncertain time, and the retirement you have planned may differ from the reality ahead.

AT THE MOST DIFFICULT OF TIMES, WE’RE HERE TO HELP

A pension fund is one of the most complex assets a couple will have to split, so anyone
going through a divorce should seek legal and professional financial advice to help them do so. For many more couples, the increase in value of pensions means that it is often the largest asset. It goes without saying that this advice is crucial as early as possible in any separation where couples have joint assets. To find out how we can help, please contact us.

Who are Vizion Wealth?

Our approach to financial planning is simple, our clients are our number one priority and we ensure all our advice, strategies and services are tailored to the specific individual to best meet their longer term financial goals and aspirations. We understand that everyone is unique. We understand that wealth means different things to different people and each client will require a different strategy to build wealth, use and enjoy it during their lifetimes and to protect it for family and loved ones in the future.

All of us at Vizion Wealth are committed to our client’s financial success and would like to have an opportunity to review your individual wealth goals. To find out more, get in touch with us – we very much look forward to hearing from you.

DISCLAIMER:

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES, OF AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS

WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

“The information contained in this article is intended solely for information purposes only and does not constitute advice.  While every attempt has been made to ensure that the information contained on this article has been obtained from reliable sources, Vizion Wealth is not responsible for any errors or omissions. In no event will Vizion Wealth be liable to the reader or anyone else for any decision made or action taken in reliance on the information provided in this article”.

Posted by Andrew Flowers

Andrew is the managing partner of Vizion Wealth and has been involved in the offshore and onshore financial services industry for over 18 years. Andrew was the driving force behind Vizion Wealth after years of experience in a number of advisory roles within high profile wealth management, private banking and independent financial advisory firms in the UK.

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