Advisers with clients going through divorce could find their clients having to head to court over their pensions thanks to a lack of clarity in the recent reforms, a leading lawyer has warned.
In some cases pensions can form part of the divorce settlement through a pensions earmarking order which provides the ex-spouse with a fixed percentage of the pension income in retirement.
However, since last month, the member of the pension scheme no longer needs to take their pension as an income and can take it all out as a lump sum instead, which might lead to a legal wrangle over splitting the lump sum.
Robin Ellison, head of strategic development for pensions at Pinsent Masons, said this was an area which the department for work and pensions needed to clarify.
He said: “I do not think anybody knows how this will work and we are all waiting for some guidance from the DWP.
“I am sure someone somewhere at the DWP is worried about what will happen, but there is no guidance at the moment and it may be that it should go to a court or the Pensions Ombudsman.
“If I was a pension scheme member I would write in and ask for my money, and if they say there is an earmarking order we could go hand in hand to a judge and see what we should do, but that will take some time.
“If I were the one with the order then I would just sit tight.”
Earmarking is one of the ways pensions are shared during a divorce, with sharing – transferring savings into a pension under their own name – being another.
In February, pensions minister Steve Webb said that divorce was the “elephant in the room”, arguing that the current system of dividing pensions up “does work terribly well”.
Jon Greer, pensions expert at Old Mutual Wealth, said: “A number of people would have set up pension earmarking when it first became possible, around 20 years ago, and the majority of these orders would have been for the benefit of the ex-wife.
“It is important that these women act promptly, especially if their ex-husband is approaching retirement age, to check their earmarked rights are protected.
“They need to ensure that where they have a right to a percentage of the retirement income they receive the same benefit if their ex-husband takes all the pension money out as cash instead of as an income.”
Adviser view
Jonathan Connell, director of Carlisle-based JPC Financial Management, said: “Earmarking is not really a big issue anymore and it tends to be done through sharing, in my experience.
“With earmarking you create problems for yourself later on and there are a lot of pitfalls.”
