Could a “grey divorce” affect your clients’ retirement plans?

New research has found that those getting divorced later in life could be left at a disadvantage.

The Legal & General report, produced in March 2024, reveals that “grey divorce” – divorce between couples over 50 years old – could pose unique challenges to the finances of those involved. Indeed, 26% of those polled said they were “financially worse off” after divorce, and 21% said their retirement lifestyle has been “negatively impacted”.

Yet sadly, 24% of grey divorcees consult family for advice, and 20% talk to friends, while only 12% seek financial advice.

If you have clients currently going through or who have recently experienced a grey divorce, keep reading to understand the specific ways this could affect their retirement plans, plus how advice could benefit them.

Pensions are an important conversation for divorcing couples who are approaching retirement

Along with property, jointly held investments, and other wealth, pensions are a crucial conversation for divorcing couples of any age – but are especially important for older divorcees. Despite this, Legal & General says only 20% of grey divorcees talk about pensions, while 58% discussed the value of their joint home.

What’s more, while both parties are affected by not including pensions in a divorce, a study published by the Standard estimates that women miss out on between £2 billion and £4 billion a year in these cases.

There are several options your clients could consider in order to reach a fair agreement, including offsetting, earmarking, and pension sharing. Each of these has its own advantages and drawbacks that may be best discussed with a financial planner, who can shed light on how each option could benefit or disadvantage your clients.

The important thing your clients need to remember is that without discussing a pension sharing arrangement, one or both parties could be left with a shortfall when they retire.

While individuals may be protective of their pension wealth during a divorce, pension sharing could benefit everyone and allow both parties to enter retirement with peace of mind. So, financial planning could be hugely beneficial, especially for divorcees who are only a few years away from retiring.

Rising costs could worry clients going through a “grey divorce”

According to Money Helper, an uncontested divorce costs the petitioner between £1,300 and £2,600 on average. The respondent may pay less than £1,000.

However, if neither party can agree on a fair division of assets, divorce may be a far more expensive endeavour. Money Helper estimates that solicitors’ and court fees could stand at around £10,000, and may even reach £30,000 in some cases of contested divorce.

What’s more, Legal & General says that both men and women see their income lessen after divorce. Men’s income drops by an average of 21%, whereas women’s income decreases by a worrying 41%.

All this means that if your clients are divorcing as they’re about to retire, or when they’re already retired, these costs could come at an inopportune time.

If they’re not yet retired but are close to this milestone, your clients might worry about depleting their savings in order to pay the fees involved in a divorce. Plus, they could be concerned that they’ll need to delay their retirement date in order to make up the funds they put towards legal costs and administrative fees.

On the other hand, if your clients are divorcing once they have already retired, they could dip into their retirement fund, including their private pension or invested wealth, to cover costs. In the process, they might damage their future financial viability – after all, most people would not budget for a divorce when planning their retirement.

Indeed, your divorcing clients’ worries about running out of money in retirement are not unfounded.

The Pensions and Lifetime Savings Association (PLSA) says that the cost of retirement has gone up, and what’s more, retiring costs more for single people than for those in a marriage or civil partnership.

The PLSA data reveals:

• The cost of a comfortable retirement has risen to £59,000 a year for a couple
• For a single person, it would cost £43,100 a year to retire comfortably.

As you can see, those going through a grey divorce might face a higher cost of retirement overall, if they remain single. So, on top of the initial cost of divorce, the combination of rising costs and a dip in household income could lead to your clients becoming financially stressed.

Financial planning could put your divorcing clients in a better position to retire

Our financial planners can help those going through divorce to come to an agreement that works for both parties. We can maintain a relationship with your clients, no matter what age their divorce happens, and build a financial plan they can rely on as they enter this next chapter of their lives.

Email enquiries@prosserknowles.co.uk or call 01905 619 100.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.