Is divorce particularly dangerous for female financial futures?

To mark Divorce Day on 2 January, Legal & General published research[1] which found that women’s incomes, on average, fall 40% after a marital split compared with a 21% decline for men’s.

Why is the impact almost twice as bad for women?

One reason could be that women are significantly 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 we know that female employment has been rising over the years, with 72.3% of women over 16 in paid employment in autumn 2022, compared with 79% of men,^[2] there are still complex reasons[3] (often related to motherhood) that mean a wife’s pension may be considerably smaller than her husband’s.

Pension pitfalls for women

At Legal & General, we’ve looked in detail at the gender differential in pensions and the reasons underlying it. We know from our research that women’s pension pots are generally half that of men’s at retirement, that the gender gap starts early on in women’s careers, and that the gap appears even in female-dominated professions.[4]

We’ve seen how domestic caring responsibilities still most commonly fall to women, and that this can affect the number of hours they work and the type of jobs they choose.[5]  

At the time of our 2022 report into auto-enrolment (AE), women often earned below the minimum annual salary to qualify for AE (pegged at £10,000 a year when we did our research) and are disproportionately represented in lower earnings categories. Therefore, we were extremely pleased 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).

Knowledge is power in pensions

However, while amending auto-enrolment 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 many more steps.

This includes raising awareness of the value of pensions which, according to Legal & General’s divorce 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 it seems that after the experience, many may have regretted their decision to not seek professional guidance, 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 our industry colleagues, policymakers and regulators to introduce practical steps – as we 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[6] 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 understand that not everyone can save into a pension, we believe everyone should at least be armed with the financial facts when considering what they’ll de-prioritise or give up.

Sources:

[1] 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’.

[2] Women and the UK economy, House of Commons Library, March 2023: “In the UK, 15.66 million women aged 16 and over were in employment in October to December 2022, according to the ONS UK labour market bulletin. This means that 108,000 more women were employed than in the year before. The female employment rate was 72.3%, down from a record high of 72.7% in December 2019 to February 2020.The male employment rate was 79.0%.”

[3] Labour trends and reasons behind the gender pay gap are explored in The Gender Pay Gap, House of Commons Library, 2023, and Women and men at work, the Institute of Fiscal Studies, 2021.

[4] Is it time for all of us to wake up to the gender pension gap?

[5] No country for old(er) women? Even female-dominated sectors witness gender pension gap.

(6] Legal & General launches a Midlife MOT course to support those aged 40 to 60; Midlife MOT: wealth, work and wellbeing