The Pensions Bill, introduced into the House of Commons on 9th May 2013, sets out proposed changes to the State Pension. The principal aspect of the bill relates to the introduction of a single-tier state pension, providing a flat rate of £144 per week from April 2016.
The Government has justified the proposed changes partly on the basis of inequalities in the existing system, including concerns that some groups, in particular women, have reduced opportunities to save for a decent income in retirement. However, it appears that the proposed changes risk exacerbating such inequalities in the event of divorce.
At present, it is possible on divorce for a spouse, most usually the wife, to substitute her National Insurance records for that of her former spouse if they have made greater contributions. This would in effect ensure that both parties would have the same basic state pension on divorce. However, this ‘substitution’ will no longer be available for those reaching pension age after the changes are introduced. This will inevitably mean that one party, usually the wife, will be left with a lower state pension income on retirement if they have taken time out to raise a family.
What can be done to address this issue? For many years, solicitors have been advising on the importance of considering pension issues on divorce. It is quite common for there to be a significant disparity in the private pension positions of a husband and wife and expert advice is required on how such differences should be addresssed. The proposed changes to the state pension will potentially serve to widen the gap between the retirement income of a husband and wife on divorce and therefore highlight the need for professional advice to ensure that a fair outcome is achieved.
17th May 2013