Can Divorced Women afford to Retire?

Can Divorced Women afford to Retire?

Divorce is a very traumatic time for both parties.  Often, for a mother, the priority in her mind is where am I and the kids going to live?

Can I afford a mortgage? Can I even get a mortgage? Or can I afford the rent on our current home?

A mother really wants as little disruption for her children as possible, so staying in the same house or staying in the same area are high priorities. 

With so much worry on a person’s mind, the thought of “how am I going to provide for myself when I retire?”, gets pushed to back of their mind.  “I will worry about that later” is often the way things go.  And then, when into her 50s, the mother has a sudden panic that retirement is looming.  She may realise she has no way of providing for herself when she wants to stop working.

Claim full state pension

To be able to claim the full state pension, you must have made in excess of 35 years of National Insurance contributions. This does not need to be continuous.  The full state pension for a single person is £167.60 per week, which equates to £8767.20 a year.

This can be topped up with a personal pension or a workplace pension. 

Pension providers suggest that a person can live on approximately 2/3 of the income they earned when working.  The average income is currently £27,000 per year.  So, an annual income of £18,000 should provide a reasonable standard of living. 

In addition to a state pension of £8767.20 a year, a personal pension of approximately £9233 per annum will be required to achieve this level of income.  To achieve this level of income today, a person would need a pension pot at retirement age of approximately £300,000.   If a person has been making contributions to a pension regularly throughout their life from a reasonably well-paid job, this should not be too much of an issue.  But when there are large gaps in employment, this does become an issue.

This rough calculation is based on national wage averages.  Depending where a person lives in the country, will determine their income needs.  A person living in London will obviously require a much higher of pension to support an average lifestyle.

Where does this leave the divorced housewife that has looked after her children?

Women need to be more financially aware when getting divorced.  Until very recently, divorcing couples have often said “We will keep our own pensions” as part of the financial agreement.  But when the husband has a pension pot that is 10 times that of his wife, this is very unfair.

Often a wife sacrifices her career and may take a part-time or low paid job when bringing up her children.  This low paid job either creates little or no pension. 

When divorcing, all pensions need to be considered when creating an asset list.  With good advice, these assets can be divided fairly.

There are basically 3 methods to divide a pension in a divorce:

  • Pension Offsetting, where a pension is offset against other joint assets.
  • A Pension Sharing Order is a way for the pension of the primary wage earner to be divided at the time of retirement. For example, a pension could be divided 60-40 as part of a consent order.
  • A Pension Attachment Order defers any lump-sum or monthly payment to the spouse from the pension to when it becomes payable.  This means waiting for the retirement of the pension owner, which could be a long time.

Often women will overlook the potential of a pension if they are still quite young and retirement is a distant event. Divorce Negotiator strongly advise women who were financially dependent on their husbands to think about their long-term future, and how they expect to provide for themselves.

Ensure you have a full state pension

The government introduced a new State Pension on 6th April 2016.  This new system is based on your National Insurance record. National Insurance contributions or credits on your National Insurance record before 6 April 2016 will also count towards the new State Pension.

You will usually need at least 10 qualifying years on your National Insurance record to get the minimum new State Pension and 35 qualifying years to get the full state pension. The qualifying years don’t need to be consecutive.  However, the minimum will only be 10/35s of the maximum state pension.  So that would be just £47.88 a week.

10 years of National Insurance credit include at least one of the following:

  • worked and paid National Insurance contributions
  • received National Insurance credits due to unemployment, sickness or as a parent or carer
  • paid voluntary National Insurance contributions

You will need 35 qualifying years to get the full new State Pension if you don’t have a National Insurance record before 6 April 2016. 

If you’ve lived or worked abroad, you may still be able to get some new State Pension.

You may also qualify if you’ve paid married women’s or widow’s reduced rate contributions.

Child Benefit

A married couple might claim child benefit for the family in the name of the husband. Child benefit is used a factor when qualifying for National Insurance credits. So a woman could be missing out on National Insurance Credits, whilst taking care of children, without realising it.

National Insurance Credits can be transferred as part of a financial order in divorce, to ensure the wife gets her full entitlement.  Failure to do so, could reduce your state pension by as much as £120 a week.

Full financial entitlement in divorce

A lot of couples choose not to have a financial order when divorcing to keep costs down.  Women are often bullied into not having a financial order.  But a woman that has given up her career to look after children could be at risk of not receiving her full state pension. 

Could you survive on £47.88 a week?

Divorce Negotiator advise couples on achieving a fair and amicable divorce.  The fair division of assets is defined in a Consent Order.  To save money on divorce, Financial Orders / Consent Orders are often omitted at the time of divorce.  People are often in a hurry to get the separation completed to prevent further contention, and too move on with life.  However, this oversight could cost dearly when they come to retire. If they are not entitled to the full state pension and do not have a private or workplace pension, they will have to continue to work past the state pensionable age, possibly to the day they die.

Advice for newly married women

For a newly married woman who is very much in love, and maybe just starting a family, a pension may seem like something to be done later in life.  However, the earlier you start, the longer your pension pot has time to grow.  The later you leave it in life, the more you will have to pay in to get the returns you want. Look at it as an insurance policy. The one thing to be sure of is you are more than likely to reach retirement age, so make sure you can retire in comfort.

For the price of a takeaway once or twice a month, a contribution to a pension could be made. That contribution in your twenties will let you live a comfortable life when you retire, instead of working till you drop. £30 a month in your 20’s could be worth over £200,000.00

To ensure you are provided for in future life, let Divorce Negotiator help you through the process.  Contact us on 0800 177 7702 for more information

Can Divorced Women afford to Retire? was last modified: November 26th, 2019 by John Fuller

Would you like to receive relevant information on divorce?
You can unsubscribe at any time