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Pension freedoms could change old divorce settlements

Pension freedoms could change old divorce settlements

Savers who have pension attachment orders following a divorce are being urged to seek legal advice as the pension freedoms can alter the use of the original settlement.

The alert was made by the Pension Advisory Group, which on Monday (July 1) published A Guide to the Treatment of Pensions on Divorce for family judges, lawyers and pension experts encouraging fairer settlements and helping to manage liability.

In the 176 page document, the multi-disciplinary group warned that the drafting of some attachment orders, especially those from the late 1990s, often conflicted with the options available under pension freedoms to those over the age of 55.

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Unlike pension sharing, where the pot is split in a clean cut, a pension attachment order redirects pension benefits to an ex-spouse or civil partner when it comes into payment. 

The Pensions Advisory Group warned there was often confusion among those responsible for administering pension schemes as to how to interpret old attachment orders, especially in the wake of the pension freedoms legislation.

The guide stated this had led to some scheme members "taking advantage of this uncertainty to their own advantage and the non-member spouse only discovering what has happened when it is too late to do anything about it".

For instance, by accessing their pension under the pension freedoms the scheme member can effectively withdraw all of their pension before the pension attachment order comes into effect.

The Pensions Advisory Group, jointly chaired by Mr Justice Francis and judge Edward Hess, is therefore urging individuals with pension attachment orders to take immediate legal advice.

This is to determine whether the attachment still provides for what was initially intended. Alternatively, people may be advised to seek to vary the order through the courts, or otherwise stop the pension from being accessed in a way that was never intended.

Gem Durham, independent financial adviser at Obsidian, noted that financial advisers should ensure they are aware of this issue.

She said: "Attachment orders have never been favoured by IFAs who have always preferred and advised for pension sharing (clean break).

"I would imagine that those who ended up with attachment orders, in the most part, had only their solicitor handling the case and didn't have the involvement of an IFA – sadly there are still a number of solicitors out there who look down on the financial advice profession and who remain ignorant to the matters that we can lend our expertise to.

"I absolutely agree with the Pension Advisory Group, and advocate that anyone with a pension attachment order seeks urgent legal advice."

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