Women should act now to avoid missing out on thousands when they retire.

For many, pensions seem very confusing and complex and as such, they are often a thing that people would rather avoid discussing. This can become even more stark when it comes to considering financial matters as part of a divorce, but it is precisely in these circumstances when you need to understand not only the pension entitlements you have but also those of your spouse/civil partner.

Traditionally, there has been a tendency for women to focus on ensuring that their immediate needs and those of their children are met, often sacrificing longer term financial provision including pensions. While this “offset” may be appropriate in some circumstances, in order to fully assess this you first need to understand all of the pensions that are available to you and your spouse and what these will provide in retirement.

One of the most critical things to check is whether you are entitled to a full State Pension. This is something that is vital that all those under pension age should do before the 31 July; otherwise you could end up missing out on thousands of pounds when you retire!

In April 2016 the UK government brought in a new State Pension system which will pay an inflation linked pension of currently up to £185.15 a week. As part of the transition to this new system, individuals have been able to ensure that they receive the full new State Pension by filling any “gaps” in their National Insurance (NI) record, by making top up payments. From the 31 July 2023 (an extension to the previous deadline of the 5 April), it will no longer be possible to fill any gaps in your NI record. Instead, if you have gaps in your record, this will result in a reduction in the amount of State Pension you receive in retirement.

You should act now. The deadline extension was granted due to the high level of requests received by the government, so it’s important that you don’t leave it to the last minute.

Why does this issue disproportionately affect women?

The amount of State Pension that you receive is typically based on the years you’ve worked as well as any NI credits you have claimed during maternity leave, ill health, or unemployment. In order to obtain a full State Pension, you generally need to have at least 35 years of full NI records. Without this, the level of State Pension you receive can be significantly reduced. While many appreciate that the State Pension alone will provide a basic level of income in retirement, the key benefit to the State Pension is that it is guaranteed to rise at least in line with inflation. As such, even the smallest reduction in State Pension entitlement can really add up over the years it is paid.

Traditionally it has been women who are more likely to have taken time away from full-time employment. Whether for maternity leave, time spent parenting or caring for a family, these gaps in employment are also likely to lead to gaps in NI records for women.

How do I check if I need to boost my State Pension contributions?

It’s easy to check your National Insurance record on GOV.UK. If you do have any “gaps” in your NI record, the Government system will confirm the level of payment you could make to “buy” the missing years that you have and ensure that you have a full State Pension. What you are required to pay depends on your exact age and NI record to date, so it is important that you check your specific record.

How do I know if paying out now to plug these gaps is right for me?

Whether it is right to make the payments will depend on your circumstances. If you are only missing a small period and you still have a number of working years ahead of you, it may be that you don’t need to buy these missing years. On the other hand, if you are closer to retirement or have significant gaps in your NI record, this may be the only way to ensure that you will benefit from a full State Pension. If you have questions about whether it is financially beneficial to make the payments required then it would be sensible to speak to a financial advisor.

Will my State Pension be affected by divorce?

Under the new State Pension system, a State Pension cannot be shared with a partner once you get divorced. Equally, for those that reached the State Pension age before 6 April 2016, a State Pension from the old system also cannot be split after a divorce or dissolution. As a result, the only way to rectify any disparity in your State Pension entitlements after 31 July 2023 will be for this to be reflected in how other pensions are shared between you. This can be very costly, especially if the other pension provision you have is limited. This is why it is vital for everyone, but particularly women aged 45-70 years old, to check their State Pension entitlements and National Insurance record.

Talk to us

We are committed to ensuring that all of our clients are fully advised about pensions to ensure that they are protected now and in the future following a separation. If you would like any advice about your particular circumstances, then please do not hesitate to get in touch with our highly experienced family law team.