A State Pension is a significant asset in a divorce. It’s important not to overlook it. In this article we look at why it is so valuable.
If someone suggested that you should ignore an asset in your divorce that could be worth between £200,000 and £300,000, you would probably question their judgment. Yet that is what many couples who divorce each year do when the importance of State Pensions is often ignored or overlooked.
State Pension and divorce
Divorce in itself doesn’t affect a State Pension so sometimes couples forget to properly take these into account to achieve fairness and they don’t understand the capital value that is effectively “hidden” in a State Pension.
The State Pension is a very valuable resource. Basically from state retirement age (currently 67 for most people) the government will pay you, subject to your having made full national insurance contributions, approximately £180 per week index linked for the rest of your life.
There is also an Additional State Pension which can give further income over and above the Basic Pension.
Capital value of the State Pension
This is why the estimated capital value of the State Pension is so high, as considerable capital sums as suggested above would need to be invested to produce even the basic State Pension on an index linked basis.
There is currently much political debate over the proposed restriction of the “triple lock” around pension increases but even if that is relaxed to some extent, the State Pension is still incredibly valuable in most divorces.
This is particularly the case for older people who have no possibility of making up the full 35 years National Insurance contributions necessary to obtain a full State Pension.
Unequal final position of spouses
When a divorce takes place it is rare to see the spouses in an equal financial position so far as pensions are concerned. Often the person who has cared for the children and not worked as much will be likely to have paid considerably less in National Insurance Contributions than their spouse.
The spouse who has worked full time is also likely to have other valuable pensions (private or occupational) in addition to the State Pension. These pensions can of course be shared by the divorce court to achieve equality of income but it is important to understand that the Basic State Pension cannot be shared.
If the inequality of income from the State Pension (either now or in the future) is ignored, then injustice is bound to be done.
Addressing the problem of the State Pension and Divorce
There are a number of ways of addressing this problem. Almost all of these involve expert advice from a solicitor, an IFA and a pensions actuary. If State Pension provision is unequal, the value of the inequality can be calculated by a pensions expert and an adjustment made through the pensions that can be shared or a separate capital award could be make from the couples’ non pension assets.
It is also possible in some circumstances for the spouse with a deficient national insurance record to repay some of the “lost years” contributions and again this could form part of a capital award in a divorce.
Next steps and where to begin
The first step to take is for each spouse to obtain a State Pension forecast and this can be done simply online by completing forms BR19 and BR20. BR19 will show the current value of a State Pension based on contributions and the BR20 will show the value of an Additional State Pension. As stated above only that element can be directly shared.
There has been considerable publicity in recent times highlighting the fact that many older women have failed to receive the benefit of their husband’s National Insurance record.
In relation to divorce this only applies to those women who reached State Pension age before 6 April 2016. For those women it is possible to ask for their divorced spouse’s NI record to be transferred to them if this would give them a higher State Pension.
This is not a difficult process – it is simply necessary to contact the State Pension agency showing evidence of the Decree Absolute and asking for the transfer of the contributions record. There is no detriment to the husband – he does not lose his State Pension contributions.
This step can considerably increase the value of the State Pension at no loss to the couple themselves.
In summary, State Pension and divorce is an important issue, because of the value of the State Pension, that should always be addressed in any divorce by obtaining full forecasts and taking expert advice.
For advice on State Pensions and divorce settlements, please get in touch below and our Family team would be happy to assist you.