Recent research from the Pensions Policy Institute shows a notable “gender pension gap” between men and women on retirement.

On average, women retiring at 67 (which will be the state pension age from 2028) will have total private pension benefits of £69,000, compared to men who will have an average pension pot of £205,000.

This significant gap of £136,000 equates to 19 years of work and is caused by women taking maternity leave, working less hours due to childcare responsibilities and earning less in general. For example, there is presently a £10,000 a year earnings threshold for workers to be automatically enrolled into a workplace pension. This excludes many of those that provide primary childcare where they are either working part-time or working across multiple jobs to fit around their responsibilities at home.

The time that women with children are not contributing to their pensions is not just limited to maternity leave, therefore, it could extend throughout the children’s minority where their ability to work will be dictated by the children’s needs. Furthermore, National Insurance contributions may be limited, if made at all, during these periods which could impact upon state pension eligibility on retirement.

For many, pensions are overlooked as a future worry particularly where it is hard to equate what pension benefits now will look like when the time comes to retire. Our experience is that, on divorce, the immediate concerns, such as being able to rehouse and afford daily living expenses, will commonly take priority over needs in retirement. However, it is very important not to lose sight of pensions and to make sure that pension benefits also factor into negotiations about the division of finances on marital breakdown.

To put pension figures into context, the Pensions and Lifetime Savings Association have prepared calculations on the pension income needed to provide for different lifestyles in retirement – they have classed these as minimum, moderate and comfortable lifestyles. In 2024, a single, retired person will require an income of £14,400 per annum to meet the minimum threshold, £31,300 for the moderate threshold and £43,100 to meet the comfortable threshold.

According to the pension provider, Scottish Widows, a pension pot of £500,000 is needed to guarantee an annual income for life of £23,300. To furnish a moderate lifestyle, a pension pot of £750,000 would be required. Based on these figures, the average woman’s pension pot at the time of retirement is well below what is needed to afford even the minimum standard of living.

Failure to consider the pension position on marital breakdown can result in quite different standards of living in retirement, despite the fact that two spouses have contributed equally (albeit one by providing primary care for the children and the other as the ‘breadwinner’). This can be addressed at the time of separation, through a Pension Sharing Order or, to a lesser extent, a lump sum payment to make up National Insurance contributions and balance state pension positions. It cannot be addressed down the line, once the other finances are resolved.

At Stephens Scown, our Family Law team are on hand to advise you on financial outcome on divorce which addresses all your needs – capital, housing and income needs for the immediate future and your needs on retirement.