Increase in pension disputes as cost-of-living crisis bites

Pensions now feature in almost 80% of divorce mediation cases.

NFM has seen a sharp increase in the number of couples locked in a disagreement over pensions.

According to NFM (National Family Mediation), pension disputes feature in an average of 64%* of the 9000 mediation cases that they deal with each year. In around 49% of cases, it is the primary area of concern for couples in conflict.

However, in 2023 that number has increased significantly, with an average of 78% of cases to date including issues relating to pensions. It was the primary area of concern for more than 61% of couples.

While NFM says that most people want to keep things as amicable as possible during the divorce process, as the cost-of-living crisis continues to bite it’s commonplace to see families fighting over finances.

The charities CEO, Sarah Hawkins, said: “People work all their lives to build up a pension pot that they hope will provide them with financial stability when they retire, so it’s hardly surprising that it regularly features as an area of conflict for couples going through a divorce.

“The main issues tend to arise where one or other person has a significantly larger pension than the other, and while there are many reasons why that might be the case it usually occurs because one person earns significantly more, or because one person has taken time off work to raise a family.

“Alongside property and children matters, pensions have always featured heavily in the mediation sessions that we manage. However, there is no denying that the number of people struggling to agree on who gets what once a relationship breaks down is definitely on the up.

“This is fuelled in part by the cost-of-living crisis, which is forcing people to think very seriously about how they are going to manage financially whether they are in a happy secure relationship or not.”

Sarah says that the number of people choosing to embrace mediation to help manage later life divorces is also a contributory factor to the increase in pensions enquiries.

“What we have seen is that there is a direct correlation between older couples who want to prioritise discussions around pensions in mediation. This is because they are, typically, at a different stage of their lives.

“The children have grown up and moved on, so that is no longer a major cause of conflict, and they are far more likely to be in a position to downsize and share out the equity in the family home.

“However, that does also mean that retirement is likely to be far more imminent and so the way that the pension is divided will be an incredibly emotive topic.”

Sarah explains that a pension pot is a term to describe the combined pensions of both parties and there are several ways that couples could look at dividing these.

She adds: “Regardless of a couple’s individual circumstances, or the stage of life that they are at, there are a few ways that they can share the pension pot.

“One option is Pension Offsetting, which is where the value of any pension is offset against other assets. An example of this might be one person receives a larger share of the family home in return for the other being able to keep their pension.

“Pension Sharing is another option, where you could share all, or a percentage of your pension with your ex-partner. This amount can be transferred into the other party’s name (into an existing or new pension scheme), which would allow the person receiving the pension to be able to control it and choose when and how to use it.

“Finally, you have what is known as Pension earmarking/attachment orders. This option means that one partner can pay a portion of their pension income to the other partner when it begins to be paid.  This could be either part of the pension income or the lump sum.”

According to Sarah, many people choose to mediate over pensions to agree a fair split. She added: “Of course both parties will have different ideas of what is fair at the start, but family mediation can help couples to agree on how to split finances, including what happens to the pensions.

“Some people might be tempted to ‘have their day in court’, but people are increasingly recognising that this route can be very costly, stressful and take far longer due to the backlogs in hearings taking place. It can also be incredibly detrimental to the financial and emotional health and wellbeing of everyone involved. Especially children.

“It’s not surprising therefore that we’re seeing more enquiries for mediation, especially as couples can also now access a £500 contribution to the costs through the government’s Mediation Voucher Scheme if they also want to talk about children matters.”

“For those that choose that route, the Family Mediator will document what you have agreed and will create a memorandum of understanding, documenting the decisions made.  This document can then be taken to a solicitor to be made into a legally binding court order which is based on what you agreed during mediation.” 

September 11th marks the start of Pension Awareness Week 2023.

Read how family mediation could help you agree financial issues related to your divorce or separation, or book an appointment with a family mediator.

*average number of cases between 2020 and 2022.