With the 6th January 2020 being national Divorce Day, I thought about the subject of pensions, and how things have moved over time. Over the years, I have dealt with several divorce situations, some where I have known both parties prior to the divorce, and some where I have met either one or both parties once divorce proceedings had commenced.
Within the following, I will look solely at what is ‘probably’ the least likely to be considered asset: pensions.
The technically allowable options (for couples to deal with pensions on divorce) have changed dramatically over the years. Historically, it was just a case of off-setting. This is where when looking at the overall position of both parties, one asset (for instance a house) was valued and then off-set against the value a pension.
The big problem with this option, is that a house is ‘normally’ used by the party receiving it as a place to live, and it then being used as such does not (unlike a pension) have possibilities to generate a retirement income. If considering a house as an asset for income generation purposes, probably the best one can look for is for the house to be sold and then some equity released for the party receiving it.
Where the pension asset concerned is a final salary one, then Trustees are not always keen to take-on a further member (the other party) as they are then becoming a member of the scheme. It also means that the spouse must take benefits at the same time as the original member, and this removes choice for the ‘new’ party being provided with membership.
Pension credits are the most ‘modern’ of options available, and these provide perhaps the greatest choice. A credit is handed to the receiving party for them to then invest their portion into pension provision as suits them. Both parties end up with a pension (of one type or another), so future / retirement provision can be considered on a more like-for-like basis.
With divorce mediation now being a ‘preferred’ route for many couples, the option of pension credits has now perhaps really come into its own, as the ‘open’ arrangements that can be arrived at via mediation, are well suited to such agreement.
Pensions may never be as high on the agenda for many as who has the cat, but they do go a long way towards feeding them!
This information is provided strictly for general consideration only. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned about the content hereof and any such action or inaction. Professional advice is necessary for every case.
Neil Dainton Dip PFS