Research reveals that the number of over-60s going through a divorce has risen by 85%*; highlighting a growing trend of ‘silver splitters’ -– couples who are deciding to part in later life.
For silver-splitters, the impact of divorce can place plans for retirement income sharply in focus. Pensions can be a significant source of accumulated wealth for those in their 60s and many couples may be relying on a lifetime income they have planned together. That’s why it’s important that pensions, and other investments, are carefully considered in the context of a divorce.
Pensions and Savings specialists Standard Life has outlined some of the key pension matters those who are divorcing later on in life need to consider.
- Sort out your future retirement income
If you’ve taken a career break to look after the kids for a while, or been a stay-at-home parent and don’t have your own pension, then making sure you have an income in retirement will be a vital part of your separation deliberations. For any couple splitting, it’s important to look at your joint pension provisions and consider if and how they might be divided.
There are essentially three ways in which a pension can be divided, and which one is right for you depends on your circumstances and the types of pensions involved. Taking legal and financial advice will help you make the right decision.
- Pension offsetting: This is where you and your partner balance how much the pension is worth against another asset, such as the matrimonial home. For example, if one of you has a large pension and you jointly own a home worth the same amount, you could agree that one of you keeps the property and the other the pension.
- Pension earmarking: Here you can arrange that when the pension of one of you eventually comes into payment, a portion of it will be paid to the other. Bear in mind, however, that earmarking means you will have to keep an eye on your ex’s pension, or they will need to keep an eye on yours, which may not be ideal if you’re both aiming for a clean break. Finally, unless you both retire at the same time you may face a period without any income, as it is all down to whoever’s pension is due to commence taking an income.
- Pension sharing: This involves splitting a pension into two new pots. Each of you gets their own pension pot for the future. Since it involves more of a clean break, it’s often a preferred method.
- Understand your investments:
You might have bonds, stocks and shares ISAs, shares, with-profit policies and other types of investments, and it’s important to understand both the value, and the cost of cashing in investments. Cashing in your investments might not be the best option as there might be tax and extra charges to pay. You can find more information on this by visiting the Money Advice Service or seek financial advice if you are unsure.
- Make a new will:
As well as reviewing your pension and investments during a divorce, it’s also essential to think about rewriting your will. Your will isn’t automatically revoked following a divorce but any gifts to your former spouse may be impacted. If you don’t already have a will, then separating from your spouse is certainly a trigger event to prompt you to make one. Your new will should reflect your new situation to ensure the right people inherit from you.
- Keep an eye on tax:
If your divorce leaves you with assets worth more than £325,000, inheritance tax could affect your estate in a way it didn’t when you were married or in a civil partnership, as you no longer qualify for a spouse exemption on your estate after you divorce. Assets which one spouse leaves to another are usually exempt from IHT. Talk to an expert about what steps you can take to minimise the impact of inheritance tax and to help ensure that everything is set up in the right way, so more goes to your chosen loved ones in the long run.
Tax and legislation are likely to change. The information provided here is based on Standard Life’s understanding of law and HM Revenue & Customs practice at date of publication.
Every person’s circumstances will be different and require advice. No guarantees are given regarding the effectiveness of any arrangement entered into on the basis of these comments.