The build-up to the announcement of any Budget is always a time of intense, fevered speculation.
Over the course of the next four weeks, though, chatter about what Rachel Reeves has in store may be even more agitated than normal.
Until she climbs to her feet in the Commons on the early afternoon of November the 26th, no-one knows for sure about the Chancellor’s plans.
Yet, faced with a relatively bleak set of economic data, she has indicated in recent days that tax rises and spending cuts are on the cards (https://www.bbc.co.uk/news/articles/c9v1r7zeekro).
Among the suggestions explored by various commentators, including influential think-tank, the Institute for Fiscal Studies (IFS), about how the Treasury might come up with more cash, is the reform of how private pensions are taxed (https://www.thetimes.com/article/42d46920-47cd-4369-898d-e433cb8354df?shareToken=5f6c0aac193af6ac4335ad7ed8ebd7de).
It is worth bearing in mind, however, the consequences of such a move.
That is not just the case for the broad population of England and Wales, even though the most recent data produced by the Office for National Statistics (ONS) showed that average life expectancy has increased by just under four per cent for men and roughly three per cent for women in the last 20 years
Living longer is one thing but people over the age of 60 are having an enormous say in how that is done.
Successive sets of figures have underlined the degree to which men and women of or about pension age are responsible for a considerable proportion of change in the nation’s households – be that marriage, cohabitation or divorce.
In previous generations, divorces over the 60 were relatively uncommon. However, the percentage of overall marital splits accounted for by men and women of that age has almost doubled in the 40 years up to 2019 – the most recent statistics available (https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/divorce/bulletins/divorcesinenglandandwales/2023).
One doesn’t have to be an expert to work out that the closer an individual is to retirement, the greater the potential impact any change to someone’s personal finances, including a pension, is.
Furthermore, when it is a pension pot which could be used for the benefit of both spouses, the concern is heightened.
In my opinion, the current uncertainty compounds the fact that although more people have private pensions than previous generations and, therefore, they are more routinely considered when it comes to the division of marital assets, they are still relatively poorly understood by both spouses and the courts (https://www.bristol.ac.uk/law/news/2023/fair-shares-upon-divorce-report-professor-emma-hitchings.html).
Welcoming a report intended to help rectify that, the most senior family judge in England and Wales – Sir Andrew McFarlane, the President of the Family Division of the High Court – emphasised that this was a “complex area” (https://www.nuffieldfoundation.org/wp-content/uploads/2023/A-guide-to-the-treatment-of-pensions-on-divorce-2nd-edition.pdf).
What is more, he continued, a consistent approach was imperative, not least because “the world of pensions does not stand still”.
I should say that the appreciation of how important pensions are in achieving a fair financial outcome for both spouses when they go their separate ways is not new.
Myself and my colleagues at Hall Brown handle a significant volume of divorces featuring public and private pensions of all sizes and types.
Pensions began to assume a measure of priority even before a landmark ruling in the House of Lords which established that the starting point for division of marital assets should be 50-50 (https://publications.parliament.uk/pa/ld199900/ldjudgmt/jd001026/white-1.htm).
Pension attention has also not just been piqued more recently by debate about what the current Government will announce next month.
Last December, the Law Commission also published a ‘scoping report’, examining whether the current laws on financial remedy in divorce, including the treatment of pensions, should be updated (https://lawcom.gov.uk/publication/financial-remedies-scoping-report-and-summary/).
Whilst it would be extremely foolish to try and second guess what the UK’s politicians may decide, it is still very much worth being alive to the possibility of change, particularly if your relationship is in trouble.
As the 2023 ‘Fair Share’ report which I alluded to above noted, many divorcing spouses neither knew the value of their own pensions nor those of their partners.
More than the practical, immediate element of needing such information for the disclosure process which forms such an integral part of divorce, it is vital when it comes to weighing up the future whether together or apart.
Again, although those issues may appear abstract and in the far-off future for younger couples, the proximity of pension age increases their relevance – and their importance.
For instance, someone who may have given up a career to raise a family and doesn’t have a pension (or, at least, one as well-stocked as their spouse) will naturally look to have some of their spouse’s pension to provide for their own lives.
The more well-off spouse will realise that a sharing of their pension in middle age leaves them with little time to restock the proverbial pot.
The answer to both scenarios is to take early, thorough advice. Even as the ONS paints a picture of longer lifespans, time is very much of the essence.
We work closely with clients and their financial advisors to develop as full an understanding as possible of what is available and what someone’s needs are going forward.
A marriage involves two spouses but with pensions apparently being scrutinised ahead of next month’s Budget, adequate divorce settlements may thereafter hinge on the demands of yourself, your ex and Rachel Reeves.
