Pension sharing orders on the rise when divorce rates are falling?
A pension can be one of the more valuable assets to a marriage especially in a long running marriage when payments into a pension fund have been made over a number of years.
Before the law changed to allow pension funds to be shared between spouses, we were limited in what we could do with a pension on divorce and this was often to the disadvantage of a wife who had stopped working and paying into a pension when children came along and expected to retire and live off a husband’s pension in retirement.
Further changes came about in 2015 when it became possible to draw on most pensions from the age of 55 rather than wait until you were 60 or over. The government made it possible to access the whole of a pension fund giving pensioners greater control over how they managed their pension pots. A quarter of the fund can now be taken as a tax-free lump sum at 55. Anything drawn above 25% will be subject to tax. For older divorcing couples, it means that there is more liquidity to the pension asset being shared. A pension sharing order no longer has to involve transferring a percentage of a pension into a new fund and keeping it there or buying an annuity. The cash from the fund can be accessed straight away and used towards the cost of a new home or re-invested for retirement in a savings vehicle such as an ISA (subject to your annual allowance) or a bond.
A buoyant stock market has seen the value of pensions funds soar in recent years making them much more attractive in divorce settlements. The now unstainable final salary pension schemes of old – less available to the younger working generation - are also hugely attractive in terms of how they can be used.
There is often a temptation by a spouse to offset a pension asset against other assets such as equity in the family home. However, it can be dangerous to treat assets like for like. Taking a property asset over a share of a pension fund could be to your financial disadvantage. The valuation provided by a pension company in particular for final salary pensions may not reflect the actual cost of buying a like for like pension/investment on the open market that will yield the same income as a final salary pension. You could be selling yourself short without professional actuarial advice about how to value and treat the pension asset for settlement purposes.
If you are thinking about getting a divorce and you want to know more about entitlement to a pension in your marriage, its worthwhile getting some advice from a specialist family lawyer. Chapman Pieri is a rapidly growing family law practice specialising exclusively in family law. Our team of family lawyers have many years of experience between them. We pride ourselves on the quality and professionalism of the client care that we deliver. Call us on 020 888 9850.