April’s new at-retirement legislation has made the issue of pensions and divorce significantly more complicated, according to Thomas Miller Wealth Management’s Debbie Kay.
The firm’s private client partner said there is a potential problem for divorcees expecting regular payouts from an ex-spouse’s pension in old age.
The new rules mean that anyone over the age of 55 can now cash in their pensions, without having to buy an annuity that provides a guaranteed income for life, however some pensions are subject to ‘earmarking orders’.
This is where former partners have the right to a percentage of the pension income received after they retire.
When these earmarking orders were drawn up over 20 years ago, Ms Kay said it was not envisaged that the pension could effectively be taken as a lump sum. “Any divorcee, in this situation, should definitely check that any earmarking order would equally apply to a capital sum as well as pension income.
She added that it would also make sense to ensure that the divorcee has checked that they have reviewed who they have nominated to receive the pension pot on their eventual demise.
“If the modelling shows that the divorcees needs are covered by other assets, the new rules allow funds to pass to any chosen beneficiary (rather than just dependents) who then have the power to pass funds on again to their chosen successors.
Chris Daems, director of Cervello Financial Planning, said while there are instances of the new pension freedoms making it easier for pension assets to be split equitably Ms Kay makes a valid and interesting point when it comes to earmarking.
Robin Ellison, head of strategic development for pensions at Pinsent Masons, previously warned that more clarity on the issue was needed from the government, following the 6 April pension freedoms coming into force.
Pensions and divorce have also been in the news recently after a Supreme Court ruling could enable thousands of ex-wives and husbands to pursue their former spouse for pension pots years after they divorce if no ‘financial order’ was established at the time.
emma.hughes@ft.com
