Post-lockdown boom in divorce set to increase burden on pension schemes
Lockdown has meant an extreme change in circumstances for spouses exacerbating issues in relationships. But the actual divorce rate hasn’t yet increased in lockdown suggesting pent up demand. The family court system has accepted remote working practises that will lead to increased efficiency. Added to these factors, a new no-fault based system of divorce will soon be implemented increasing the ease of divorce.
In the coming year this is going significantly increase the number of divorces and consequently the work to split pensions arising from Pension Sharing Options (PSOs).
Witness to the increased strain in married relationships, Citizens Advice has seen a 25% increase in visits to their ‘getting a divorce’ web page. Whilst the pandemic will not be the cause of marital breakdown, lockdown has taken away the distractions of work, friends or perhaps a lover. Where finances have taken a hit during the pandemic, couples will have avoided the added stress of splitting assets and adding two sets of ‘running costs’.
Dealing with this pent up demand the court system, like many, has had to adjust to remote working and has actually fared well. The ability to work digitally has been accelerated by years in some respects, for example digital consent orders being turned around in a week or so, compared to four or five months before in divorce centres. Post lockdown these new practises will be balanced out with a return to face-to-face justice leading to increased efficiency.
The boom in divorce post-lockdown will be compounded by the introduction of a new no-fault system heralding the biggest change in divorce law for over 50 years. Currently 60% of divorce cases are on a fault basis creating long drawn-out acrimonious processes. The change in law will make it easier for couples to divorce. In itself this is not expected to lead to an increase in the divorce rate but coupled with the conditions of post lockdown it could give easier vent to the pent-up demand.
All told, this is going to increase a burden on schemes actioning Pension Sharing Orders – particularly a challenge to DB schemes given the complexity of ‘splitting’ earmarked assets (as opposed to an income share). Pensions are often a divorcing couple’s second most valuable asset after the family home and are sometimes worth even more.
PSOs give rise to a transfer process where the spouse with the claim is far from being in the best mental state to work through the process. The spouse is likely to be befuddled by the need for financial advice for the transfer and even more daunted by the cost of advice. There is the cost of generating the CETV which may well be repeated due to time delays – along with associated exposure to market fluctuations. Furthermore, there is a build-up of administration costs for communications and chasing through to the final transfer of assets.
For schemes, PSOs may not be at the top of the agenda (and work pile) but they are disproportionately burdensome when considering the outcome required and certainly there is loss of value in the process making it generally an all-round losing situation for all parties.