Why divorce is a “fault line” for the worrying £136,000 gender pension gap

a woman working in a laboratory

Each year, on 8 March, International Women’s Day gives focus to issues such as gender equality, reproductive rights, and violence and abuse against women.

In recent years, one of the key financial issues affecting women has been the “gender pension gap”.

Recent research published by the Actuarial Post revealed that, today, women retire on average with pension savings of £69,000, compared to £205,000 for the average man. To close this gap, a girl would need to start pension saving at just three years old to retire with the same amount of money as a working man.

The issue is exacerbated because, on average, women live around seven years longer than men, meaning the pension wealth they have accumulated also needs to go further.

If you have female clients – especially those going through a separation – they may need bespoke advice to help them achieve their desired standard of living in retirement.

In the month of International Women’s Day, read on to find out more about the significant gender pension gap that exists, and why divorce can be a key “fault line” for this gap.

Women would need to save for an additional 19 years to close the gender pension gap

Research reported by the Actuarial Post reveals that the average woman would need to save for 19 additional years to retire with the same pension wealth as their male counterpart.

The study found that women make up 79% of workers who earn less than the automatic enrolment earnings threshold – meaning that 1.9 million women in employment are not automatically enrolled into a workplace pension.

If both age and earning thresholds were removed from automatic enrolment, an additional 885,000 young women in employment would become eligible for a workplace pension.

In addition, on average, women spend 10 years away from the workforce to raise families or take on other caring responsibilities. This career gap amounts to an average of £39,000 in lost pension savings.

Furthermore, the rising cost of childcare means that many women cannot afford to return to work. Actuarial Post reports that the average cost of a full-time nursery for a child under age two in 2023 was £14,800 a year, while in London the average annual nursery fees are £20,000 or more per child.

All these factors mean that, by their late 50s, a woman will have average pension savings worth less than two-thirds of a man’s.

Divorce is a “key fault line” when it comes to the gender pension gap

While factors such as the gender pay gap, women taking career breaks to care for others, and the auto-enrolment thresholds mean many women accrue smaller pensions, divorce can also be a “key fault line”.

Recent Legal & General research, reported by PensionsAge, found that women’s financial futures are often at risk following divorce, as women see their household income fall by 41% per cent following a split, compared to just 21% for men.

What’s more, the report also revealed that just 12% of couples consider their pension as part of divorce proceedings. Moreover, women were also significantly more likely to waive their rights to a partner’s pension as part of a separation, with 30% of women confirming this compared to 17%.

Failing to include pensions in a financial settlement can exacerbate the already significant gender pension gap. It could also leave divorcing women without the resources to fund their retirement.

Many women regret not seeking financial advice on divorce

If you have female clients separating from their spouse/partner – especially those with significant wealth – seeking financial advice could add real value.

We can help clients to ensure that they receive a fair pension settlement and work with individuals to set up pensions to receive any court-ordered share.

Despite the benefits of financial planning on divorce, the report found that only 7% of those going through a separation seek independent financial advice.

After the experience, many women suggest they regretted their decision to not seek professional guidance, with one-third (31%) saying they’d be more likely to turn to an adviser in future.

Commenting on the findings, Rita Butler-Jones from Legal & General said: “Disentangling finances when a marriage ends can be painful for all concerned. But just as we’ve seen with gender gaps in pay and pensions, there may be particular jeopardy if you’re a woman.

“These findings tell us that divorce is a further key fault line in exacerbating the gender pensions gap. We would encourage anyone who is going through a divorce to consider the joint value of pensions as an important financial asset in any equitable split.”

Get in touch

If you have female clients who would benefit from independent advice when they separate, we can help.

As Pension on Divorce Experts (PODEs) we can work with clients to help them understand what a fair settlement might look like, and ensure they take their valuable pension wealth into account when dividing assets.

To find out more, please mail info@BlueSKYifas.co.uk or call us on 0118 987 6655.