Reforms to Pensions May Require Positive Action by Divorcees to Protect Their Benefits

Prior to pension sharing, pension earmarking orders were commonplace. This is where one spouse would effectively keep their pension in their name but part of the lump sum and/or the pension income would be “earmarked” for the benefit of their former spouse.

Nowadays most people use Pension Sharing on divorce rather than earmarking. The difference being that instead of one spouse keeping their pension in their name and part of the benefits simply being “earmarked” for the benefit of the other, the share they will receive is instead effectively carved off immediately for their benefit and then placed in their name.

Pension Sharing is for most people a far more attractive option than earmarking in that remarriage can terminate an earmarking order before any benefit is gained from it. In contrast with Pension Sharing Orders subsequent remarriage doesn’t actually make any difference and the pension that has been carved off and transferred can simply be retained by that spouse.

In view of the above the majority of pension orders these days tend to be for Pension Sharing, the main exception being when the couple are having a Judicial Separation rather than a divorce where Pension Sharing is not actually available as the parties technically remain married to each other.

We are now in a brave new world with pensions whereby the new pension freedoms allow people to potentially draw down all of their pension after age 55, subject of course to tax. However, these new reforms to the pensions system mean that divorcees who simply have “earmarking” orders may need to act fast to protect their benefits, for example if they simply have the benefit of a fixed percentage of pension income in retirement earmarked for their benefit.

The reforms provide for a significant, unintended, loophole as the member no longer needs to take their pension as an income and can instead take all the cash out in one go if they want.

As such, it is advisable that any divorcees with pension earmarking orders immediately check to see if their rights remain protected. Concurrently, if the wording of the order does not make explicit that such rights remain protected; it is recommended that they should seek legal advice to ascertain whether they can make an amendment to the order and ensure that their right to a percentage of that income is protected either way.

Paul Lancaster

Paul Lancaster

Paul Lancaster
Family Department
0113 227 9233

This entry was posted in Family Law. Bookmark the permalink.

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s