This is the last in our series of blogs looking at Sorting out the Money. If you want to know how it all works, or get tips for dealing with property and mortgages , or understand more about maintenance following a separation then please have a look at the previous blogs.
In family mediation we often talk about sorting out capital, income and pensions. The last two blogs have focused more on those initial areas and now we’re looking at pensions. Pensions are often a tricky area because a lot of people don’t understand pensions and don’t really give them much thought because of the fact that they see them as only benefiting them following their retirement – which may be a while away.
If you’re under 55 then it’s unlikely your pensions will house you, help you make ends meet or keep you warm at night so is it worth giving them much thought when you separate? The answer to this is an emphatic yes. Firstly, because following a separation you need to know that you will be able to make ends meet going forwards and that includes looking at what happens after you have retired. Secondly, if you haven’t really ever given much thought to what pension provision you have then now is probably a good time to start.
Like all money aspects the starting point is understanding what pensions you each have. This includes pensions you’re currently paying into now as well as pensions that are frozen. We have encountered a fair number of people who thought that when they left a job they had also left the pension they had there. Remember that you will benefit from all pensions you’ve ever paid into (or your employer has paid into) when you retire. This is why it’s important to get information about all pensions you have. This should include information about what schemes you have and what their current value is. The current value of a pension is called a Cash Equivalent. If you haven’t got a recent statement showing this then you can contact your pension company (ies) and ask for this. If you’re nearing retirement age then a forecast of your likely pension benefits may also be helpful.
The type of scheme your pension is invested in and any benefits is also important. For example, if you have what’s called a Final Salary scheme then your pension will be a percentage of your final salary depending on how long you have worked for that company. This can be a substantial pension and especially so if you’re a high earner.
There are different things you can do with pensions following a separation and what’s right for you will depend on your circumstances. You can talk about the pros and cons of different options with a family mediator or get more tailored advice from your lawyer or a financial adviser. You can share a pension fund. This means that you can take a percentage of one person’s pension and transfer it a new pension in the other person’s name so that their pension provision is improved. The percentage that is given to the other person will depend on lots of different things and will need to be something you both feel is right based on your circumstances. You can use an expert, called an actuary, to look at your pensions and to advise you as to what scheme it’s best to share (if you have a number of different pensions), or what percentage you would need to share to achieve a particular aim e.g equal retirement income.
There can sometimes be a temptation to try to get more capital now to help your housing situation and to prefer this to having pension provision. This is short term in that it means your situation may be improved in the immediate future but you may then find it hard to make ends meet in retirement. If you have argued strongly to stay in a property then having to downsize in retirement to enable you to pay your bills can make it feel like a hollow victory. It’s important to consider your whole financial situation in looking at a financial resolution so that you can feel confident in how you’ll make ends meet. Financial experts like Chartered Financial Planners can help you to forecast your outgoings into the future so that they can help you to understand if you will be able to make ends meet, or look at what you need to do in order to achieve this.
We will be talking more about this and other financial issues in our series of downloadable webinars which will be coming in the spring. Update they’re now here and you can find them here. If you’d like to get our blogs and other supportive resources directly into your inbox you can sign up to our free mailing list. We also have a separate mailing list for professionals working with separating couples. This will include details of our forthcoming training workshops and networking events.
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