Marriage break-up costs could wipe out a sixth of retirement income when divorced people reach old age

  • People stopping work in 2017 and never divorced expect to retire on £19,400
  • But average income falls to £16,300 if they have suffered a marriage break-up
  • Some 38% of 1,000 retirees polled by Prudential were divorced

By TANYA JEFFERIES, PENSIONS AND INVESTMENT EDITOR

Updated:

Divorce could slash retirement income by around a sixth as the cost of splitting up and embarking on separate lives takes a toll on couples' finances, new research suggests.

People due to stop work in 2017 expect to retire on an average £19,400 a year if they have never divorced, but £16,300 if they have suffered a marriage break-up.

Anticipated income in retirement includes money from state and private pensions, savings and investments, and is based on average findings from a nationwide survey of 1,000 people by Prudential.

Divorce costs: Splitting up and embarking on separate lives takes a toll on couples' finances

Divorce costs: Splitting up and embarking on separate lives takes a toll on couples' finances

Some 38 per cent of retirees polled by the finance giant were divorced, and the rest were married, widowed, separated or single.

Couples who divorce have to shell out legal fees, divide assets including pension funds and investments, and finance separate homes and lives.

Prudential found that nearly one in three divorced retirees expect to retire with debts, against one in five among those who were not divorced.

Divorcees are also more likely to end up on retirement incomes that fall short of the minimum income standard for single pensioners set by the Joseph Rowntree Foundation.

The JRF's current benchmark for the annual income deemed necessary for a single pensioner to get by is £186.76 a week or £9,712 a year.

Prudential noted that the divorce rate - the number of men and women divorcing per thousand married men or women - is falling, according to the most recent figures from the Office for National Statistics published at the end of last year.

It reported that in 2014, 9.3 men divorced per thousand married males, down 5.1 per cent on 2013 and down 30.6 per cent from a 2004 peak in the divorce rate. Some 9.3 women divorced per thousand married females, also down 5.1 per cent on 2013 but down 29.5 per cent compared with 2004.

However, Prudential pointed out that the one age group that saw a rise in the divorce rate in 2014 was women aged 55-plus, a large proportion of whom would be planning their retirement or already retired.

The ONS gave no specific explanation for why this age and gender group saw a rise in the divorce rate, when neither the equivalent male age group nor any other did at the same time.

However, the ONS numbercrunchers made a number of general points about marriage and divorce trends, including the tendency of men to marry younger women, increased cohabitation and increasing age at first marriage, a higher risk of divorce among those who married at younger ages, and cohabitation potentially reducing the number of weaker relationships progressing to marriage.

Some 8 per cent of divorce records have no age stated for the wife and 9 per cent of records have no age stated for the husband.

Clare Moffat, pensions specialist at Prudential, said: 'The financial impact of divorce can be devastating both in the short and longer-term, lasting well into retirement as divorcees experience expected retirement incomes of as much as 16 per cent lower than those who’ve never divorced.

'Deciding on living costs and childcare at the point of divorce is difficult enough, but a pension fund is likely to be one of the most complicated assets a couple will have to split in the event of a divorce.

'The rise in divorce rates among women aged 55-plus is particularly worrying as women, unfortunately, tend to have lower retirement incomes than men.'

Richard Collins, divorce lawyer and partner at Charles Russell Speechlys, said regarding the Prudential research: 'Next to the family home, the pension is often the biggest asset in a divorce case. If pension savings have been built during the marriage, they are commonly split equally.

'Given recent pension changes and the increased flexibility of some pensions, there is a rising trend for divorcing wives to seek a pension rather than taking other assets in place of pensions, which used to be the typical position.

'Additionally, new pension rules allow some pensions to be passed down one or two generations in a tax-efficient manner. These advantages appear to be attractive to increasing numbers of divorcing wives who are keen to trade other types of assets in a financial settlement to secure pension provision.'

He added: 'Baby boomers, now in their 50s and 60s, are fuelling the rise in divorces among older couples. With husbands or wives approaching the ends of their careers and regular earned incomes, pension provision is especially important for a divorcing couple. They have to focus on financing separate lives in retirement which could last, in some cases, for a number of decades.'

Prudential recently revealed data from its annual survey showing that people retiring in 2017 expect the highest average annual income in eight years. Their predicted income of £18,100 is almost as high as the 2008 pre-crash peak of £18,700. 

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