Divorced women reach retirement with just £26,100, half of the average woman’s savings, find NOW: Pensions and Pensions Policy Institute (PPI)

  • The median pension wealth of divorced men and women by retirement is £103,500 and £26,100, respectively
  • A divorced woman has a private pension pot 42% smaller than the UK average
  • 7 in 10 divorces do not consider pension settlements, leaving women under-funded when they reach retirement

New research commissioned by NOW: Pensions, the pension provider for 1.8 million people, uncovers the struggles divorced women face in retirement as a result of an inadequate pension income. In 2018, divorced women had a private pension income 42% smaller than the UK average – £3,880 compared with £6,650.

The data, which will be published in a report on ‘under-pensioned groups’ by the Pensions Policy Institute (PPI), has found that divorce has a bigger impact on women’s retirement savings than on men’s. The median pension wealth of a divorced man is £103,500, a third less than the average man’s (£156,500), whereas the median pension wealth of a divorced woman is £26,100 – just half of the average woman’s savings of £51,000.

For divorced women, the primary barrier to achieving adequate retirement outcomes is the division of assets during divorce and the high prevalence of pension assets not being considered within this process. Although pension pots can often be the second most-valuable asset when people are going through a divorce, they are often overlooked with seven out of ten (71%) divorce settlements not taking pensions into consideration.

Additionally, divorced women are twice as likely not to be saving anything at all for retirement compared to divorced men.

Home ownership was found to be lower amongst divorced women (49%) than the UK average (65%) which has important ramifications for wider financial wellbeing as renters tend to face higher housing costs and more instability than homeowners.

Women working part time are more likely to be in in low paying occupations, defined as occupations in which median hourly pay is in the bottom quartile of hourly pay for the wider population. Currently 34% divorced women work part time (34%) compared to 36% than women overall.

And COVID-19 is impacting the financial life journeys of women of all ages, in particular divorcees, compounding the existing gender pension gap. During the pandemic, figures show that women’s careers have been the most affected. According to the Institute for Fiscal Studies, mothers are one and a half times more likely to have permanently lost or quit their job since lockdown began¹.

This, paired with many women taking on more childcare due to nursery and school closures means that they are working less and earning less. This all plays a part in reducing how much you can pay into savings and a pension, how much employers will top it up, and how much tax relief your savings receive.

Since the beginning of lockdown, the spike in divorce rates during this period in comparison to last year means we could see even more divorced women falling victim to the gender pension gap. Now, more than ever, people should engage with pensions and acknowledge them as an asset throughout divorce proceedings.

Policies aimed at increasing awareness of pension rights during divorce could be particularly effective at increasing divorced women’s retirement incomes.

Danielle Burke, 40, from London, lives with her 6-year-old daughter. Since her split from her partner in 2015, Danielle has been working part-time. During the divorce, her pension wasn’t taken into consideration when separating the couple’s finances as, at the time, she had stopped working to look after their new baby. Throughout the settlement, Danielle’s main focus was getting back to normality by getting her daughter into nursery and getting back to work as soon as possible.

Now, 5 years on from the divorce, Danielle is realising the financial cost of not recognising pensions as an asset during divorce proceedings. She’s currently on an auto-enrolment people’s pension and also has various pensions from previous employers, but given all the outgoings of being a single parent and the fact she’s working part-time in order to take care of her daughter, Danielle can’t contribute anything more to her pension scheme other than what her employer is already adding to the pot.

“I wish I’d known the importance of recognising pensions as an asset at the time of my divorce. I am aware I need to be investing in my future but my priority is ensuring I have enough savings to support us at the moment.

“It’s so important that we raise awareness of this problem so that more women know to include pensions in their divorce settlements so that they don’t have to struggle financially when they reach retirement.”

Joanne Segars, Chair of Trustee at NOW: Pensions commented: “From our extensive work on the gender pensions gap, it is clear that women who are also part of other under-pensioned groups, such as those who are divorced, will see a compounded impact on their savings for later life. 

“The modelling we commissioned PPI to carry out has given us an in-depth look at six groups which are under-pensioned because of an inadequate ability to save throughout their working lives. This is often a result of outdated social norms, discrimination and unfair saving schemes. 

“By uncovering the reasons that these groups face inadequate financial wealth in retirement, we can begin to look at the solutions that will ensure that everyone reaches retirement with a sufficient pension income as this has a direct impact on people’s health and wellbeing.”

Phillip Way, Partner, Mills and Reeve LLP, said: “The research commissioned by NOW: Pensions shines a further crucial light on the adverse financial impact of divorce on women.  Women contemplating divorce must ensure that they are aware of their own and their husband’s pension savings and their likely incomes in retirement. 

“For many, it is all too easy to focus on the here and now in what are often distressing circumstances.  For example, many women have found that, in keeping the house in a divorce settlement and not looking carefully at pensions, they have put themselves in a poor financial position for the long-term future.”  

Jane Portas, Insuring Women’s Futures, commented: “Women’s financial lives continue to be shaped by society’s expectations of them at work and at home, as has been borne out through the COVID-19 lockdown. Today, the UK gender pay gap stands at 17% and women’s life-time earnings are a mere fraction of men’s at just 59%, culminating in a multiplicative gender pension gap.

“As NOW: Pensions’ research clearly shows, the gender pension gap is even further exacerbated on divorce and there are increasing numbers of couples divorcing in their 50s. 

“The complexity of many pension arrangements, the availability of Pensions Drawdowns, combined with a lack of pensions awareness, simultaneous to the rise in online and quickie divorces, means that in the absence of affordable advice and with pension sharing optional rather than the default, many divorcing women are losing out and risk financial hardship in later life.”

Five-point plan for fairer pensions

  • Removal of the £10,000 auto-enrolment trigger to get more women into auto-enrolment
    This would bring an additional 1.4 million women in pension saving.
  • Auto enrolment contributions on every pound of earnings
    This would improve pension part-time workers who are more likely to be women. This would increase pension wealth by 140% at retirement.
  • The introduction of a family carer’s top up
    Women taking time out to care are compensated in the State Pension by State Pension credits, however, they miss out on auto enrolment. The family carer’s top up would see the government pay the equivalent of the employers’ contribution at National Living Wage level into women’s pensions who are taking time out to care. This would equate to approximately £820 per year and would boost women’s pension outcomes by 20%.
    The family carer top-up can close around half of the pension wealth gap created by taking time out of work to care for family.
  • Divorce – make pension sharing the default
    Ensuring that pension funds are always considered in divorce settlements – approximately 10% of men and 14% of women in their early 60s are divorced. The median pension wealth of divorced men and women by retirement is £103,500 and £26,100 respectively. These figures compared to the population indicate a pension wealth reduction of a third for men but a half for women, signifying a greater impact of divorce for women than men.
    Although pension pots can often be the second most valuable asset when people are going through a divorce, they are often overlooked, with people paying more attention to property assets.
    In 2018, there were 118,142 divorces but only 4,632 pension attachment orders were made by the family courts.
  • Greater action on the availability and cost of childcare to enable those that want to return to work
    Despite tax changes that help families with childcare costs, prices continue to rise. The Family and Childcare Trust reported in 2018 that childcare prices for children under three had risen above both inflation and wages in the previous year. Costs grew by 7% to £122 for 25 hours per week, equating to £6300 per year.
    Analysis of freedom of information request data by Insurer Royal London shows the high cost of childcare means working parents with toddlers pay more for childcare than their mortgage. A full-time nursery place for a child under two typically costs £1,065 a month, for example, while the average monthly mortgage repayment is £1,040 and the equivalent figure for renters is £833.

PSLA Retirement Living Standards
The minimum
At a cost of £10,200 per year for a single person and £15,700 for a couple, the minimum living standard covers all your needs plus enough for some fun – including social participation and social occasions. For example, you could holiday in the UK, eat out about once a month and do some affordable leisure activities about twice a week. The good news is that through a combination of the full state pension of £8,767.20 per year, and auto-enrolment in a workplace pension, this level should be very achievable for most people.

The moderate
This lifestyle (£20,200 a year for singles and £29,100 for couples) provides, in addition to the minimum lifestyle, more financial security and more flexibility. For example, you could have a two-week holiday in Europe and eat out a few times a month. Savers would have the opportunity to do more of the things they want to do.

The comfortable
As this level (£33,000 a year for singles and £47,500 for couples), retirees could enjoy some luxuries like regular beauty treatments, theatre trips and three weeks in Europe a year.

Roughly speaking, a single person will need about £10k a year to achieve the minimum living standard, £20k a year for moderate, and £30k a year for comfortable. Like 5-a-day, this can be briefly summarised as 10k-20k-30k. For couples, it’s 15k-30k-45k.

The standards cover a range of goods and services that are relevant for the majority of people. Currently most people when they reach retirement do not have mortgage, rent or social care costs. These and other costs such as tax on pension income may need to be added depending on individuals’ circumstances.

Notes to editors

¹ Institute for Fiscal Studies, How are mothers and fathers balancing work and family under lockdown? (27 May 2020)

More information

Samantha Gould – NOW: Pensions
Email: pressoffice@nowpensions.com
Instinctif Partners
Email: nowpensions@instinctif.com