New divorce law could fuel pension wealth inequality

From April couples will be able to secure a ‘no fault’ divorce within six months of applying.

The changes are the biggest shake-up in divorce law in half a century.

Former pensions minister Steve Webb and specialist barrister Rhys Taylor have concerns that the new divorce law, coupled with the increased move to an online process already underway, could undermine the effective sharing of pension wealth at divorce.

Financial orders are currently only made in around 1 in 3 divorces, with not all of these including pension orders. This means that formal orders in respect of pensions only apply in a minority of cases. 

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Steve Webb and Rhys Taylor said the new divorce process could make matters worse.

Steve Webb, now a partner at pensions consultancy LCP, said: “One group currently at high risk of retirement poverty is divorced women.  In large part this is because relatively little attention is often given at the time of divorce to a financial settlement which gives proper weight to pension wealth. 

“It is entirely understandable that divorcing couples focus on other matters, but the risk is that people simply do not understand the value of pensions. 

“Whilst there is much to commend the new divorce law, it would be very unfortunate if a by-product was that even fewer divorces were accompanied by a fair sharing of the couple’s overall wealth, and in particular of pensions”.

Rhys Taylor, a family law barrister specialising in pensions on divorce, said: “I very much welcome the new divorce law, but the family justice system needs to be astute to avoid the law of unintended consequences. So often pensions are the last thing anyone really wants to think about, especially on divorce. Care needs to be taken to ensure that the fair distribution of pension wealth on divorce is not overlooked in this brave new era.”

The full paper from Steve Webb and Rhys Taylor on the impact of the new divorce law on the sharing of pensions, can be read on LCP’s website. 

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