Spouses could lose up to £665K by excluding pensions in divorce, it has been warned. New interactive investor calculations have been published on the eve of ‘Divorce Day’ 2025, when divorce enquiries typically spike after Christmas.
Using an initial pension value of £100,000 at age 40 and assuming retirement at 68 (the state pension age is rising to 68 for people born on or after 6 April 1978), a spouse could forgo a financial asset worth over £196,000 if the pension is excluded from the divorce settlement, assuming annual growth of 5% (net of fees) over the 28-year period.
Myron Jobson, Senior Personal Finance Analyst at interactive investor, said: “The process of untangling two lives is rarely straightforward and often brings emotional and financial challenges. How finances are divided is frequently a contentious issue, with the family home often seen as the most valuable asset, while pensions are overlooked.
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“Pensions are widely underestimated, and our research reveals that the majority of divorcing couples don’t even discuss them. This oversight leads many — particularly women — to miss out on future income that should have been theirs. A pension left invested over a long period of time is turbocharged by the power of compounding, where growth is not only on the original contributions but also on previous returns, significantly increasing the overall value of the pot overtime.”
The calculations also assume the couple agrees to a pension-sharing arrangement, splitting the pension 50:50. If the pension grows by 7% annually, the shared pot rises to over £332,000. The financial impact is even more significant with larger initial pension values. A £200,000 pension, for example, could grow to over £392,000 at 5% annual growth, or nearly £665,000 at 7% annual growth over the same period.
Mr Jobson said: “The emotional toll of divorce, the misconception that other assets take precedence, and a lack of awareness about the long-term financial implications are key reasons why pensions are often ignored. Adding to the confusion is the ever-changing pensions landscape, which makes assessing the long-term value of pension pots more challenging.
“While no one enters a marriage expecting a divorce, understanding your household finances is crucial. It not only provides clarity on your entitlements in the event of a break-up but also helps couples make informed financial decisions during their relationship.”