Prudential reveals divorce 'costs £2,600 per year in expected retirement income'

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Prudential's Class of 2013 research shows retirees who have been divorced expect a £13,800 annual retirement income compared with £16,400 for those who have never had a marriage breakdown

Prudential's Class of 2013 research, the latest of its annual studies into the financial plans and expectations of people planning to retire in the next year, has for the first time looked at the impact of divorce on retirement finances. The results have highlighted stark differences in expected retirement income between those who have been divorced and those who have not.

Divorce reduces average expected retirement income by around £2,600 or as much as 16 per cent a year, according to the research from Prudential (1). People who are planning to retire in 2013 who have gone through a divorce expect to retire with an annual income of £13,800 compared with £16,400 for those who have never experienced a marriage breakdown.

The research shows that 40 per cent of those planning to retire in 2013 have been divorced, and in general they are less likely to have private pensions, more likely to retire with debts, and are less likely to believe they are financially well prepared for retirement. They are also less likely to expect to be able to leave an inheritance.

Nearly one in five (18 per cent) of previously divorced 2013 retirees have no private pension savings compared with 14 per cent of those who have never been divorced. Prudential also found that 22 per cent of those who have been divorced are retiring with debts compared with 16 per cent who have not been divorced, while just 45 per cent expect to leave an inheritance compared with 52 per cent who have not been divorced.

Only one in three (33 per cent) of those who have been divorced believe they have saved enough for a comfortable retirement, while just 42 per cent of those who have divorced say they are financially well-prepared for retirement.

Clare Moffat, pensions specialist at Prudential, said: "Divorce can be emotionally draining but also financially draining as the retirement income gap for divorcees demonstrates. Whether it is due to the financial implications of splitting existing pensions, the cost of setting up a new home or legal fees, divorce clearly has a major impact on the retirement plans of many people. Around two in five marriages end in divorce and it is most common among couples aged 40 to 44 – the time of their lives when they would expect their earnings and their ability to save for retirement to peak (2).

"Women's retirement incomes are particularly vulnerable to the financial effects of divorce and pensions. Many of them may be relying on their husband's pension and in some couples the wife may have had little input to the financial decisions that have been made over the years.

"For those divorcing or dissolving a civil partnership, a pension fund is likely to be one of the largest and most complex joint assets to be split. Advice from specialists including a retirement expert or a financial adviser can help ensure that decisions made at the time of a divorce are to the benefit of both parties' eventual retirement incomes. Free advice is also available from organisations such as The Pensions Advisory Service (3)."

However it is not all doom and gloom – the results show that divorced retirees in 2013 are choosing not to delay the date of their retirement compared to those who have never been divorced (4) - despite the dent divorce has caused in their expected incomes. Government statistics (5) also show that the number of divorces continues to fall in the UK. The most recent figures for 2011 showed 129,763 divorces, compared with 132,338 in the previous year and 180,493, the highest number ever recorded, in 1993.

The research also found that 61 per cent of those who have been divorced and are retiring with debts still owe money on credit cards, compared with 50 per cent of those who haven't been divorced. In addition, 46 per cent still have mortgages compared with 40 per cent of those who have not been divorced.

The information contained in Prudential UK's press releases is intended solely for journalists and should not be used by consumers to make financial decisions. Full consumer product information can be found at http://www.pru.co.uk.

About the company:

Prudential plc is an international financial services group with significant operations in Asia, the US and the UK. They serve over 24 million insurance customers and have £405 billion of assets under management (at 31 December 2012). They are listed on stock exchanges in London, Hong Kong, Singapore and New York.

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Notes to Editors:

1. Research Plus conducted an independent online survey for Prudential from 2-12 November 2012, interviewing 8,676 UK non-retired adults aged 45+, including 1,007 people intending to retire in 2013.
2. Office for National Statistics – Divorces in England and Wales, 2011 – Key Findings:
http://www.ons.gov.uk/ons/rel/vsob1/divorces-in-england-and-wales/2011/stb-divorces-2011.html#tab-Key-findings
3. https://www.pensionsadvisoryservice.org.uk/state-pensions/state-pension-and-divorce
4. In answer to the question “How old will you be when you retire in 2013?” The average age for all those planning to retire in 2013 was 60.2 years. The average age of those who have previously been divorced and are planning to retire in 2013 was 60.2 years. Overall amongst all adults aged 45+, there were no differences between the average ages of divorcees and non-divorcees.
5. Office for National Statistics – Vital Statistics: Population and Health Reference Tables, Spring 2013 Update:
http://www.ons.gov.uk/ons/rel/vsob1/vital-statistics--population-and-health-reference-tables/spring-2013-update/rtd-annual-table.xls

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Ben Davies