EXPERT BLOGS


Divorce & your retirement pension

AIDAN BAILEY reveals what happens to your retirement pension upon divorce.

 

For many people, their largest asset – other than their home – is often their retirement pension. And during divorce, a commonly-raised question is, “what happens to my pension?”

          It’s compulsory to take pension entitlements into consideration in divorce settlements. The three key options available are offsetting pension benefits, pension attachment orders and pension sharing orders. The method used can be negotiated through your solicitors, or if contentious left to a Court to decide – and Courts normally prefer pension sharing or offsetting.

 

Offsetting pension benefits Pension rights are taken into consideration and equalised through transferring other financial assets of the marriage. For example, one spouse might retain their pension fund while the other keeps the family home. This method makes for a clean break with each party retaining their existing pension benefits.

Pension attachment orders Formerly known as earmarking orders, this method does not allow for a clean break. Attachment orders do not transfer ownership of any of the pension to an ex-spouse, so the member still has full control – subject to what the trustees will allow – over how the pension is run. In addition, benefits are taxed at the marginal rate of the member who retains the liability for the income tax on the whole pension – even the part of the pension earmarked for the ex-spouse.

Other drawbacks are:

·         Benefits remain with the member. The ex-spouse has no control over the timing of benefits or investment risk.

·         Income benefits cease on the member’s death – although a lump sum death benefit may be earmarked.

·         Benefits cease on the ex-spouse’s death or remarriage.

·         If the member retires early the member and the ex-spouse receive a reduced pension.

Pension sharing orders (PSO) With a PSO, the court awards a slice of the pension benefits known as a pension credit to the ex-spouse. This is based upon a percentage share of the Cash Equivalent Transfer Value (CETV). A corresponding pension debit reduces the value of the former spouse’s benefit.
         
Where the existing scheme is a personal pension scheme, the CETV is always transferred to a scheme chosen by the ex-spouse – usually another personal pension. In cases where the pension is split, the pension share does not have to be 50/50. And if the parties are unable to agree, the split will be set by the court. In practice, the split of the pension value is likely to be unequal, due to the different life expectancies of males and females.


Aidan Bailey BA (Hons) CertPFS AWPCM 
General Manager Singapore, International Division

 

Share this!

Posted by The Fry Group Wed, 28 Apr 2010 03:29:00 GMT