Why you shouldn’t agree to NOT look at the pensions?
Keeping the family home might not be the right move.
I hear from a lot of people going through divorce. One of the things that crops up time and again is that the equity in the house (money left after the mortgage is paid), savings and investments are being split but “we’re not looking at the pensions”. As pensions are often the second biggest assets of the marriage, why would anyone ignore them? What things are holding people back?
My ex wants to keep their pensions
Pensions cannot be held in joint names, just like ISAs; They have to be in the sole name of the holder. However, if the house was in one of your names and not the other, would you feel that you didn’t want to look at it? No, of course you wouldn’t. Because pensions are often linked to employment, we see people being possessive over them and not wanting them to be “attacked” or “taken away”.
We also find the spouse with lesser pension benefits feeling that they have no entitlement, particularly if they had taken time out of work to have children. This is not the case. As a homemaker or stay at home parent, your value is in the work that you so in that job. Whilst you may not directly bring home an income, your contribution to the household is huge and is often underestimated. I found this calculator to work out how much you could bill in your area, based on 8 jobs you might complete in the home:
Pensions are as much marital assets as the house, savings and investments. You absolutely should look at them and, most importantly, understand what you’re looking at.
Pensions are complicated
Pensions can be complicated but not looking at them could mean you giving up on assets that you are entitled to. This could mean you working more years than are necessary before work is optional.
There are some basic things to understand; namely, whether your pension when you retire is linked to your salary (Defined benefit) or the value of the pension pot (Defined contribution). You will need to request some information from the pension providers. One of the things you will be asked to request is the Cash Equivalent Transfer Value (CETV). For Defined Contribution plans that don’t include any guarantees, this is an accurate value of the benefits payable. For Defined Benefit plans or Defined Contribution plans with guarantees, this may not be the case because of the method used by the scheme actuaries to calculate transfer values as opposed to the method used to compare the values of benefits in different schemes.
How do you deal with these complications?
You need to take specialist advice. Begin by speaking to a financial planner. They will be able to advise you as to whether they alone can help or whether you also need an actuary. If so, they can help you to instruct one, directly or more commonly through your lawyer. They can also then help you to understand the report from the actuary.
“I would prefer to keep the house“
It is common that one partner wants to keep the family home and is prepared to give away their entitlement to their ex’s pensions in order to increase the share of the house that they get. This is called offsetting. Whilst it feels important for the children that you stay in the family home, if it is not affordable, it is better to sell and move on. You may also find that quite quickly you would prefer to have a home that doesn’t surround you by memories of your marriage and also that your children are more resilient than you thought they would be.
This view is also only considering the short term and thinking about life as it is now. Children grow up and leave home. You may find it difficult to think longer term, to a time when you won’t be working. Starting to understand what your financial future looks like and getting some clarity on how much retirement income you will have available can help you to think longer term and understand why looking at pensions is important. A financial planner can help you to do that.