April’s at-retirement reforms open up various options for couples divorcing and attempting to amicably share pension and property assets, preventing a situation where currently many are forced to sell the family home.
Paul Lancaster, partner in the family law department at Leeds-based Blacks Solicitors, told FTAdviser that the ability to access either some or all of a pension fund from age 55 will mean those traditionally forced to sell their house will often be able to use their pot to pay off a partner.
“Couples usually have equity in a shared house and money in separate pensions, with the former often being the only money accessible before retirement, but that comes with the problem of how to meet housing needs when selling up, probably downsizing and, as elderly people, struggling to get a new mortgage.”
He explained that if divorcing couples have significantly different levels of pension provision, the party with the smaller pension will currently either seek a ‘pension sharing order’, so that part of their spouse’s pension is effectively carved off for their benefit, they may seek to ‘offset’ pension claims.
“For example by asking for a greater share of the other assets of the marriage such as the equity in a property or savings etc so as to compensate them for retaining the smaller pension.”
Mr Lancaster added that PSOs will become less popular, as clients seek to avoid provider setup fees of up to £1,000.
Divorcing couples will now be able to look at potential settlements which allow the party with the greater pension to retain that pension by instead agreeing to pay a lump sum - or a cascading series of lump sums - funded by them taking advantage of the ability to drawdown.
He pointed out that a series of lump sums taken over a few years may prove the most attractive option as this is likely to help mitigate against income tax on the funds drawn down.
Last September, FTAdviser sister title Financial Adviser reported that a ‘poor’ calculation by a divorce lawyer left a woman risking the loss of 50 per cent of her defined benefit pension, with her husband’s financial adviser warning other in the industry to keep an eye on the issue.
The divorce lawyer dividing up assets between his client and the client’s wife did not do an estimate of benefit at retirement and performed an incorrect calculation on the woman’s national health service pension, according to Carl Melvin, director of Affluent Financial Planning.
Mr Lancaster added that most solicitors have already started to build elements of the new flexibilities into divorce settlements.
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peter.walker@ft.com
