Pension reforms and divorce - how the recent changes may affect you...

by Lindsay Halliwell, 01 June 2016

The pension freedom reforms that came into force on 6 April 2015 may impact upon pay-outs divorcees receive from their ex-spouse’s pension. The reforms give people more power to spend, save or invest their pensions, allowing over 55s to cash in their entire pension pot subject to taxation which will have unforeseen consequences for those who benefit from ‘attachment’ or ‘earmarking orders’.  

Attachment orders give former spouses the right to a percentage of pension income of the member after retirement. Following the reforms, a pension subject to an attachment order can be drawn down in cash rather than be taken as income. This may mean an ex-spouse will not receive the correct entitlement under the terms of the court order. When attachment orders were commonplace no one envisaged that the current reforms would have such far reaching consequences and as a result, orders of this nature did not take in account that the entire pot could be withdrawn in full. For those who have an attachment order and their ex spouse is near retirement age, time is of the essence to seek specialist legal and financial advice.

Pension sharing orders have almost completely replaced earmarking orders whereby a cash transfer value of the pension is agreed and a percentage transferred into a separate fund of the ex-spouse.  However, problems faced by attachment orders are still relevant as many divorce settlements were drawn up before pension sharing was permissible by statute. 

The family team at Steele Raymond is experienced in dealing with pensions and connected issues and if you would like us to review your order, or are not sure if your order will be affected, please contact Lindsay Halliwell on 01202 294566.

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Lindsay Halliwell

Senior Associate
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