Life & Living
Pensions & Divorce
Pensions are often a couple’s most valuable assets. Jeremy Woodruff looks at the issues involved and how a specially qualified Pensions on Divorce Expert can help resolve them.
For many couples, the combined value of their pension benefits can often be worth as much, if not more, than the family home. Resolving how to take these intoaccount in a divorce settlement poses many questions.
I find when talking to clients who are starting the divorce process that dividing their pensions can be an emotive subject. Some people are especially defensive about their pensions, but Family Courts will expect to see them valued and may insist that benefits are shared where there is a disparity in the pension entitlements that each partner has accrued. This is particularly the case for couples who have been in a long marriage or where one partner has taken charge of raising the family, either not working or working part-time for a number of years.
Details of pension savings must be provided in the disclosure process and must be accounted for in the eventual agreement between the couple. Valuing a pension can be challenging. Schemes that are built up using contributions from you and perhaps your employer will have a capital value, but if your pension benefits have been built up in a workplace scheme where benefits are based on your salary and your length of service (known as a defined benefit scheme), the valuation is more complex.
When it comes to deciding how to split pension assets fairly, expert advice can be essential. A Pensions on Divorce Expert (known as a PODE) is a specially trained financial adviser who can be invaluable in supporting you if you are in the process of separating finances that include pensions. The adviser will help you get the necessary valuations and ensure you understand the implications of the different solutions that may be possible.
The value of your pension is often not purely dependent on a simple cash equivalent figure and a fair outcome is not always to simply split combined assets down the middle. Divorce courts often look to help couples achieve equality of income in retirement, for example, and that may vary according to the type of pension each partner holds, their age, tax status, income needs and any additional benefits that may form part of the pension.
If you and your partner agree that pension assets should be shared – or if a Family Court decrees that it should happen – it will be done via a pension sharing order. This will normally involve one partner passing pension entitlements to the other: pensions will usually only be shared as pensions, not as cash, so won’t be accessible until the individual reaches the minimum retirement age, which is currently age 55. Once you reach the minimum retirement age, you may be able to withdraw cash from the pension fund, but you should get advice at this stage as withdrawals from the fund may have tax implications and affect your future retirement planning.
If the pension to be shared is a defined benefit scheme from a workplace pension, you may be made a sub-member of the scheme and only be able to take it as pension income, rather than taking cash withdrawals.
Pension sharing may involve opening a new pension scheme for you or your partner and advice will help you ensure that the new scheme is suitable for you. In some cases, pension sharing may be used to balance the assets of the separating couple, such as using the pension assets of one partner to be offset against the value of the family home.
The role of pensions in a financial settlement between separating partners is a critical one and should not be overlooked. Advice from a PODE can ensure the outcome is fair to both parties.
Any opinions expressed in this article do not constitute advice.
Smith & Pinching are Chartered Financial Planners. If you would like a no-cost exploratory review to discuss your investment planning with an adviser, call us today on 01603 789966 or email firstname.lastname@example.org