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The latest data suggests that only 14% of divorcees are splitting retirement assets when they break up, according to a national wealth manager.


Wealth manager Quilter says that many divorcing couples may be missing out on a valuable benefit as a result.

With relaxation of divorce rules on the way the company believes more people may choose to divorce without seeking financial advice and will lost out as a result.

The company, which includes Quilter Financial Planning, says it is possible some divorcing couples may be choosing alternative arrangements, for example where one party keeps their pension but relinquishes the family home, but this still ignores the possibility that a retirement pot may be the most valuable asset.

Quilter has looked at the latest figures from the Family Law Courts. These show that there were 118,408 petitions filed for dissolution of marriage in 2018, but only 14% contained “some sort” of pension settlement order.

This is despite a recent trend in people getting divorced later in life, it says. According to the Office for National Statistics, the median age of divorce for men and women has increased by 10 years between 1987 and 2017, says Quilter.

As people divorce later, this group has less time to build a retirement income if they did not have a pension of their own, meaning dividing this asset could be key to avoiding “pension poverty”, says Quilter. ONS data shows that 45% of women aged 65 or over have no private pension wealth. 

Since 2015 the use of pension attachment orders has increased by 61%, while pension sharing orders have risen by 41%. However, while both types of pension orders have increased in popularity, they still represent a relatively small percentage of total divorce cases, says Quilter.

Year

Petitions filed for dissolution of marriage

Pension sharing orders

Pension attachment orders

Total pension settlements

2011

129,313

9,152

2,283

11,435

2012

124,453

9,841

3,100

12,941

2013

117,508

9,538

2,888

12,426

2014

112,603

9,039

2,855

11,894

2015

114,571

8,197

2,993

11,190

2016

114,127

10,394

4,243

14,637

2017

109,353

11,822

4,351

16,173

2018

118,421

11,532

4,817

16,349

2019 (Q1-Q3)

88,217

8,586

3,395

11,981

Source: Quilter

Jon Greer, head of retirement policy at Quilter, said: “Divorce is an emotional and stressful period for those who have to go through it. However, it’s important that people think of these valuable assets when considering how they split their money. This is particularly problematic given the average age of divorcees and it is more likely that a woman will not have any sizable pension of their own.

“With rules around divorce potentially becoming more relaxed in the future via no-fault divorce laws, we could see a further increase in do it yourself divorces where specialist advice is not sought. This could see many miss out on important pension benefits.”

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With political parties due to unveil their election manifestos ahead of the 12 December General Election AJ Bell has launched its own election wish list.

The firm has set out a series of proposals designed it says would “radically simplify” the rules savers are required to navigate.

AJ Bell’s ‘manifesto’ includes:

ISAs

·        ISAs, which have become popular with investors partly because of their simplicity, are under threat from the same creeping complexity that has suffocated pensions

·        We now have at least six different types of ISA, each with different rules and restrictions people need to understand

·        The next Government should return the ISA to its simpler roots by creating One ISA incorporating the main features of the existing framework

·        This would include a 25% bonus on the first £4,000 of savings where the money is used to pay towards a first home, payable on completion



Pensions

·        The next Government, whoever it may be, needs to address mounting complexity which risks putting an entire generation off saving for their future

·        In the short-term the annual allowance taper needs to be scrapped to ease strains on the NHS

·        This should trigger a longer-term, independent review of pension tax rules aimed at simplifying the system and encouraging more people to save for retirement

·        The unfair and poorly understood money purchase annual allowance (MPAA) should also be ditched as part of this review. If necessary, the annual allowance could be lowered to compensate for any lost revenue to the Treasury

·        In addition, policymakers should aim to simplify the overall tax structure by moving to a single annual allowance for defined contribution (DC) pensions and a lifetime allowance for defined benefit (DB) pensions

·        Pension death benefits should be formally excluded from the Inheritance Tax net to remove the situation where pension providers, not the customer have discretion over who receives pension funds when someone dies

Andy Bell, chief executive of AJ Bell, said: “All too often election manifestos focus on short term political point scoring, while the savings gap in the UK continues to widen.

“This is one of the biggest challenges our society faces and the next Government will have a huge opportunity to make life a lot simpler for people trying to do the right thing and save for their future.

“Pension reforms in 2006 were supposed to usher a new era of simplification for pensions, but since then politicians have repeatedly tinkered with the rules to the point even an actuary would struggle to make sense of some of them.

“No sensible person would create a pension system from scratch with three different annual allowances, a lifetime allowance and no fewer than seven lifetime allowance ‘protections’.

“Now automatic enrolment has been fully introduced, focus needs to turn to engaging more people to save for their own futures.

“Creating a more straightforward tax system which people understand is a necessary condition for building greater levels of trust in pensions.

“ISAs have similarly morphed from simple beginnings to become increasingly difficult for investors to understand.

“Incorporating the best features of the current ISA system in One ISA, including the bonus for first home purchase, while removing the unnecessary complexity we know puts people off would make life easier for millions of people.

“Furthermore, new investors could be better encouraged to save for their future in a system they can more easily understand.”
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