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29 Feb 2024
by Rita Butler-Jones

Why divorce impacts female finances and how employers can help

Disentangling finances when a marriage ends can be painful for all concerned. But just as with gender gaps in pay and pensions, there may be greater jeopardy for a woman

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Women’s incomes, on average, fall 40% after a marital split compared with a 21% decline in men’s, according to research published by Legal & General to mark Divorce Day on 2 January. 

One reason why is the impact is almost twice as bad for women could be that women are more likely to waive their rights to their partner’s pension, with 30% of women signing away their stake compared with 17% of men.

This is significant, because although female employment has been rising steadily over the years, with 72.3% of women over 16 in paid employment in autumn 2022, compared with 79% of men, there are still complex reasons (often related to motherhood) that mean a wife’s pension may be considerably smaller than her husband’s.

Pension pitfalls for women

Women’s pension pots at retirement are generally half that of men’s. This gender gap starts early on in women’s careers and appears even in female-dominated professions.

At the same time, domestic caring responsibilities still most commonly fall to women, and this can affect the number of hours they work and the type of jobs they choose.

At the time of Legal & General’s 2022 report into auto-enrolment (AE), women often earned below the minimum annual salary to qualify for AE (£10,000 a year when the research was carried out) and are disproportionately represented in lower earnings categories. Therefore, it was pleasing that in September 2023, Royal Assent was granted to a Private Member’s Bill seeking to abolish the lower earnings limit for AE (and reduce the age limit for AE eligibility from 22 to 18).

Pension knowledge is power 

However, while amending AE eligibility thresholds is a significant and welcome step towards supporting lower-paid people to save for retirement, tackling issues that particularly prevent women from achieving pension equality requires a lot more more.

This includes raising awareness of the value of pensions which, according to Legal & General’s research, isn’t nearly high enough on divorcing couples’ agendas. While almost half of them (49%) consider the value of their joint home when dividing assets, just 12% think about their pensions.

Meanwhile, only 7% of those going through divorce seek independent financial advice. Yet, after the experience, many apparently regret their decision not to seek professional help, since 31% said they’d be more likely to turn to an adviser in future.

Yet again, research demonstrates that there’s still a long way to go to recalibrate the mechanisms that exacerbate the gender pension gap, but we can mitigate some of their effects.

Legal & General will continue to collaborate with industry colleagues, policymakers and regulators to introduce practical steps – as it did with the AE amendments.

We’ll also continue to encourage better financial education for all ages – such as our ongoing partnerships with children’s financial education charity RedSTART and The Open University with whom we co-produced courses such as our Midlife MOT and retirement planning programme. Plus, we offer podcasts that aim to demystify personal finance across generations.

Essentially, we’ll keep raising awareness of the value of pensions because, while we realise not everyone can save into a pension, everyone should at least be armed with the financial facts when considering what they’ll de-prioritise or give up.

Opinium Research conducted 2,750 online interviews of UK adults who are divorced. The research, on behalf of Legal & General Retail, was conducted between 20 and 30 November 2023. See ‘Holy Matrimoney: 272,000 delay divorce due to cost-of-living pressures’.

In partnership with Legal & General

Legal & General Investment Management is one of Europe’s largest asset managers, offering investment solutions to a broad range of clients globally.

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