New figures have laid bare a stark financial divide in retirement, revealing that divorced pensioners are significantly more likely to depend on the state pension than their married counterparts.
The Stark Pension Reliance Gap
Analysis from investment platform Interactive Investor shows a dramatic disparity in retirement income sources. The research found that nearly 70 per cent of divorcees rely on the state pension from the Department for Work and Pensions (DWP) as their primary source of income after leaving work.
This contrasts sharply with just 45 per cent of married people who count the state pension as their main financial support in later life. The data underscores how the financial impact of a marriage breakdown can extend for decades.
Why Divorce Hits Pensions Hard
The profound effect occurs because pensions are treated as a joint marital asset under UK law. During divorce proceedings, pension pots are typically split to ensure a fair financial settlement.
Courts consider various factors when deciding on this split, including:
- The length of the marriage.
- Whether there are children involved.
- The financial needs and resources of each party.
This division often leaves both individuals with a significantly reduced private pension. The Interactive Investor study highlights this, showing that only 21 per cent of divorcees relied mainly on a private pension, while fewer than four per cent depended on a personal pension or a Self-Invested Personal Pension (SIPP).
An 'Unfortunate Reality' and Long Financial Shadow
Craig Rickman, a personal finance and pensions expert at Interactive Investor, commented on the findings. "Getting divorced can cast a long financial shadow, even into later life," he said.
Rickman pointed out the difficulty of rebuilding wealth post-divorce, particularly when it comes to getting back on the property ladder or boosting a pension pot, a challenge often magnified for single parents.
He described a troubling situation for many: "The unfortunate reality is that many individuals don’t get a fair outcome during divorce negotiations." Rickman explained that people are frequently making critical financial decisions under immense emotional and financial strain, creating a "perfect storm" where outcomes can affect their finances for years to come.
Steps to Rebuild Financial Security
For those navigating a divorce, Rickman advises a methodical approach to finances. "If you’re going through a divorce, you may feel like you’re starting from scratch with your finances," he noted, emphasising the importance of taking stock of changing circumstances.
His recommendations for improving future wealth include:
- Creating a realistic budget to understand your new financial position.
- Increasing your savings rate gradually, if possible.
- Investing regularly, even small amounts, to benefit from long-term growth.
"Making small and regular steps can be easier than a dramatic overhaul and the long-term impact can be just as effective," Rickman concluded, advising people to review and fine-tune their financial affairs at frequent intervals.
