Build up your retirement savings after divorce or dissolution

As part of your financial settlement, you may have received part of your ex-husband, wife or civil partner’s pensions. Or you may have given up a share of yours. Whatever your circumstances after you separate, and once you can afford to, it’s important to start or to build up your retirement savings.

Work out how much you need to live on when you retire

Start by working out how much you’d need to live on when you retire, and how much you’d like to have. That will help you decide what you need to do.

When you retire, some of your living costs may be lower than when you’re working, while others, such as fuel bills, may be higher.

The amount you need at retirement will depend on a range of factors. These could include whether you have to pay your rent or mortgage, your lifestyle and what you’d like to do when you retire.

Read more in Estimate how much you need to save for retirement.

Decide what to do with your pension settlement

You may have received:

  • A share of your ex-partner’s pension, which you have to pay into a pension plan for your retirement, or
  • Membership of your ex-partner’s pension scheme (you become a ‘pension credit’ member)

Not all pension schemes will let ex-partners (husbands, wives or civil partners) join. If that’s the case, you’ll have to decide where to invest your pension settlement. You should take advice by contacting either The Pensions Advisory Service, which is free to use and impartial, or an independent financial adviser, who will charge you for their time. Talk to an expert as soon as you can.

Contact The Pensions Advisory Service for free and impartial advice.

Read more about Choosing a financial adviser in our guide.

Put as much money as you can afford into your pension

Whether or not you already have a pension, you should think about how you will live in your retirement. Without your own pension or other retirement income, you might have to rely only on your State Pension for financial support.

Take these simple steps:

  • Work out how much you can afford to pay every month. Draw up a budget with our Budget planner to find out how much you have left each month and try our Quick cash finder to see where you can make savings.
  • Find out if you can join your workplace pension scheme. If you’re employed and aged between 22 and State Pension age, and earn more than the personal tax allowance (£11,000 a year in 2016-17), it’s likely that you’ll be enrolled into your workplace pension scheme. You’ll also get a contribution from your employer. If you don’t meet these criteria, you may still be able to join, but you won’t get a payment from your employer. Read more in our section on Automatic Enrolment.
  • If you work for yourself, you can take out a pension on your own – either a personal pension or a Nest pension. Read more in our guide to NEST pensions. You can also find out about Pensions for the self-employed.

Alternatives to pensions

If you don’t want to save towards your retirement in a pension, or you want more flexibility, then there are other options. If you prefer, you can use an ISA (individual savings account) or another investment plan as well as or instead of a pension. There are pros and cons to each:

ISAs – the pros:

  • You can access money in an ISA at any age
  • You don’t have to pay any tax on money you take out of an ISA or when you cash it in

ISAs – the cons:

  • You don’t get tax relief on money you pay into an ISA
  • The fact you can take out your ISA money whenever you want may be a disadvantage if you aren’t disciplined

Read more about New Cash ISAs.

Pensions – the pros:

  • You get tax relief on money you pay into a pension. In simple terms, tax relief is a government top up. It means that every £100 you pay in only costs you £80 if you are a basic rate taxpayer
  • If you’re in a workplace pension, your employer usually contributes too

Pensions – the cons:

  • You have to wait until you are 55 before you can take money out of your pension
  • You have to pay tax on most of the money you take out of a pension. You are allowed to withdraw 25 per cent tax free, but you have to pay tax on the rest

Building up your State Pension

If you’re divorced or your civil partnership has been dissolved, you may have been given some of your ex-partner’s additional State Pension as part of the financial settlement. You may also be able to claim a basic State Pension on your ex-partner’s National Insurance (NI) record if it is better than your own. The rules say:

  • You can substitute your ex-partner’s NI record instead of your own, either for the years you were married or in a civil partnership, until you divorced or dissolved your civil partnership.
  • You can’t get a State Pension based on your ex-partner’s NI record if you remarry or enter a new civil partnership before you reach State Pension age.
  • You can’t get a State Pension based on your ex-partner’s NI record if you reach State Pension age on or after 6 April 2016. That is when the flat-rate State Pension of a maximum £155.65 per week comes into effect. images. The only exception will be for women who paid the reduced rate NI (married women’s stamp) at any time in the last 35 years.

Read more in the article on State pensions.

Your next step

Review insurance for dependants and your will on divorce or dissolution