1st April sees the introduction of the government’s pension reforms which were announced in last years’ budget. Though they have been widely reported very little has been said about the impact on divorcing couples or those considering seeking divorce.
If you are a member of a defined benefit scheme with the exception of a public sector unfunded scheme or a differed contribution scheme then you will benefit from the reforms.
You will be allowed to withdraw additional parts of or your entire pension fund at 55, subject to paying tax. You can still purchase an annuity or leave the savings invested in the market.
These reforms are likely to create new options for generating liquidity.
Divorcing couples need to identify not only whether they, or their spouse, have a pension scheme/s but also obtain information on the type of scheme and specifically where either defined benefit or differed contribution schemes exist. Once this information is known the drawdown arrangements can be considered for available cash.
If you have entered into or are thinking of entering into a pension attachment order (previously an earmarking order) you need to consider the consequences of the new reforms. Before the introduction of the more popular pension share order, the attachment order was for some time the only pension order a court could make. Unlike a pension share order, the recipient of a pension attachment order does not receive control of a distinct fund. Rather the scheme remains under the control of the spouse whose pension it was. The spouse being able to use the change in legislation to either reduce or eradicate monthly payments due under the Attachment Order by drawing down on part or all of the fund.
The problem can be avoided by an undertaking given by the appropriate party. Where you have already entered an attachment order you may feel it necessary to ask for a binding and enforceable assurance to be given by your former spouse as to the preservation of the fund.
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