Care must be taken that a change in divorce rules does not have a negative impact on women’s pension rights, according to a former pensions minister.
Divorced women may already be at high risk of poverty in retirement because often relatively little attention is given to financial regulations that take full account of pension wealth, said the former Liberal Democrat pensions minister, Sir Steve Webb.
Major changes to divorce law will come into effect from April.
The Divorce, Dissolution and Separation Act 2020 reforms the legal requirements and process of divorce. The changes will reduce the potential for conflict between divorcing couples and help them avoid the ‘blame game’.
They will allow couples to end their marriage together and remove the ability to make allegations about a spouse’s conduct.
A new online divorce application service will be available from April 6, 2022.
A research paper written by Sir Steve and family law solicitor Rhys Taylor looked at the new divorce law and its potential impact on pension splitting in England and Wales.
He found that the move to ‘no-fault’ divorce has been widely welcomed and is designed to streamline the process, but there are concerns that the new divorce law, coupled with the increased move to an online process, could undermine more effective sharing of pension wealth. to divorce.
Divorcing spouses may underestimate the potential value of retirement wealth, for example salary-based retirement income may be worth far more than the family home.
Couples may also be more focused on other priorities such as having a place to live, financial security and child support.
While these problems exist in the current system, the authors raised concerns that the new process could make matters worse.
In some cases, a spouse may receive notice that a divorce petition has been filed just months before the court is asked to make the first divorce order and there is little they can do to stop it. or delay the process, they said.
According to the authors, people may also be reluctant to raise pension issues for fear of being viewed as obstructions in a new system designed to reduce conflict.
The authors called for careful scrutiny by the Justice Department into whether attitudes and pension outcomes are changing as a result of the new divorce proceedings.
Sir Steve, who is now a partner at LCP (Lane Clark and Peacock) said: ‘A group currently at high risk of retirement poverty is divorced women.
“This is largely because relatively little attention is often given at the time of divorce to a financial settlement that gives appropriate weight to retirement wealth.
“It’s completely understandable that divorcing couples focus on other things, but the risk is that people just don’t understand the value of pensions.
“While there is much to welcome the new divorce law, it would be very unfortunate if a by-product were that even fewer divorces were accompanied by a fair sharing of the couple’s overall wealth, and especially pensions.”
Mr Taylor said: ‘I very much welcome the new divorce law, but the family justice system needs to be smart to avoid the law of unintended consequences.
“A lot of times, pensions are the last thing you really want to think about, especially in the event of a divorce. Care must be taken that the fair distribution of pension wealth in the event of divorce is not overlooked in this brave new era.
A Department of Justice spokesperson said: ‘This is not a new issue and in fact our changes give couples more time to work out their issues and a better chance of doing so amicably.
“We are committed to further exploring financial arrangements, including pension splitting, once these changes are in place.”