Pensions & Divorce after A day

Pensions sharing and earmarking

29.04.2005

Pensions sharing and pensions attachment (also known as earmarking) will continue to be available by divorcing parties under the pensions tax regime. There will be no change to the legal process - the parties will still need to obtain a court order and they will still need all the current information.

There is little change to the position for pension attachment orders. Under the new pensions tax regime the member will test the total benefits, including those payable to their ex-husband or ex-wife against their life time allowance. It is possible that changes arising from pension simplification could alter the benefits payable within an attachment order. These changes include the ability to take tax-free cash from protected rights or existing maximum tax free cash lump sum certificates no longer applying. In addition changes to the early retirement age may mean clients being able to access benefits earlier.

In respect of pension sharing there is provision for a member's pension rights to be split on divorce. The pension debit reduces the value of the member's scheme benefits, however individuals in occupational schemes will find the pension debit is taken into account when calculating maximum benefits. It is still treated as a benefit for that person, although it will be paid to someone else.

After A day individuals with pension debits and credits will be able to apply for an increase in the personal allowance. This may effect their decision to opt for primary protection.

Maximum benefits in the future will be tested against the lifetime allowance rather than the maximum benefits calculation. Therefore after A Day, individuals with pension debits are able to increase funding to make up for any loss suffered by the pension's debit.

In respect of the information provided by trustees on forms P1 and P2, a new form P3 has been introduced. This is designed to provide more detailed information from the trustees who are required to attach a Cash Equivalent Transfer Value regarding a member's accrued benefits along with an explanation as to how it has been calculated and the pension benefits included. This information should then be referred to an Independent Financial Adviser for their interpretation and comment on the assumptions used within the calculation.

Co-Written by:

1. Jonathan Hearn, Pensions Advisor, Montpelier Group (Europe) Ltd, Montpelier Court, Barston Lane,Eascote,Solihull B92 0JP, tel 01675 446500

2. Kevin Harris-James, Irwin Mitchell Solicitors, 31 Temple Street, Birmingham B2 5DB, tel 0121 214 5278.