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The impact of changes in Pension legislation post - April 2015

 

The Government has for many years been encouraging us to save for our retirement. Most recently workplace pension schemes have been introduced. In some cases the value of our pension provision is the most valuable asset we have. This is why it is vital that the pension provision is properly valued within the framework of a divorce financial settlement.

Statute has always been slow to adapt to changing lifestyles and it was as comparatively recent as 2000 that the courts allowed those with pension funds to share those funds with their estranged spouse upon divorce.

Pensions have historically been relatively inflexible savings vehicles. The pension holder used to have to purchase an annuity on retirement which provided a monthly income for an agreed term at a fixed rate.

In April 2015 the Government decided to update that arrangement and now pension holders who are aged 55 and over can take the pension fund in its totality as and when they choose subject to tax over the first 25% of the accrued sum.

Following the changes it is now possible for a pension holder to remove their entire pension fund thereby thwarting any court order. Particular care therefore needs to be taken to ensure that the intentions of the parties are reflected in the fastidious drafting of any court order.

Although pension legislation has been changed, other relevant parts of the legislation and practise in relation to divorce have not.

It is too soon for any case law covering interaction between the new pension flexibility and divorce, but legal challenge will come. In the meantime there should be even more focus on ensuring that  court orders reflect the intended result in a way that cannot be frustrated through the pensions flexibility.

What impact have the changes had on the different ways in which pensions can be dealt with upon divorce?

 1.)  Off-setting

Pre-April 2015 pensions were not usually valued on a pound for pound basis with other assets. This was due to the lack of access to the full value. This was discussed in the case of Maskell v Maskell (2001). Whilst the County Court Judge at first instance suggested that the pension could be compared on a like for like basis, on Appeal, Lord Justice Hope stated that the judge had made the “elementary mistake of confusing present capital with a right to financial benefits on retirement, only 25% of which maximum could be taken in capital terms with the other 75% taken as an annuity stream”.

However for those “silver divorces” where the parties are over 55 there is now total access to defined pension funds. This may lead to parity with other assets.

2.)  Earmarking/attachment

These are potentially difficult if not impossible to implement unless they are very specifically defined in the court order. For example: the pension owning spouse may be able to avoid payment of the pension income or tax free cash as set out in the earmarking order by choosing to take all the benefits as an uncrystallised pension lump sum, thereby emptying the entire fund before the order bites.

3.)  Pension Sharing

Post April 2015 the non-pension owning spouse may prefer to have cash rather than a share of the fund. When a member is over 55 this is now possible, even if the spouse is much younger as the right to access the pension fund is linked to the policy holder.

4.)  Death Benefit

Death benefits have changed and discussions should be held with Solicitors as pension benefits can now be passed on after death. Expression of wish forms have always been important but now are more so due to pension death benefits being capable of being passed down to generations.

An estranged spouse is still technically a dependant; therefore care needs to be taken between separation and decree absolute.

The law relating to pensions is a growth area and we anticipate case law developing over the next few years – watch this space……

Disclaimer: This article is not intended to constitute legal advice.  For legal advice in connection with the above, please contact us directly.

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