In a typical divorce case, after the marital home, the most valuable assets are the parties’ pensions. In a significant percentage of such cases, the husband has accrued a pension or pensions with a Capital Transfer Value (CETV) greater than that of the wife.
The Courts mainly deal with the husband’s pension in two ways:
1. By making a pension sharing order transferring a share of the husband’s pension to the wife, or;
2. By offsetting the value of the husband’s pension over and above the wife’s and giving the wife a greater share of the marital home or any savings.
In past divorce cases, many wives have preferred the offsetting option, desiring a greater share of the house proceeds and savings, and in some cases the house has even been transferred to the wife; the husband retaining his pension.
New Rules
The divorce landscape is likely to change dramatically as a result of changes introduced in the March 2014 budget which will come into effect in April 2015. The new pension rules will allow unlimited access to a pension pot after reaching the age of 55 years.
A brief summary - Taking your pension from April 2015
From April 2015 you will be able to access and use your pension pot in any way you wish after the age of 55.
You will be able to:
1. Take up to a quarter (25%) of your pension pot tax free and convert some or all of the rest into a taxable retirement income.
2. Take up to a quarter (25%) of your pension pot tax free and take some or all of the remainder of the lump sum which will be taxed as if it were income, or
3. Withdraw your cash in stages of a quarter (25%) of each withdrawal tax free and the remaining three quarters (75%) taxed as if it was income.
The new pension rules are likely to increase the significance of a pension in a divorce case for the following reasons:
1. The new rules are likely to have an effect on the offsetting calculations. With the current system, usually offsetting is not done on a pound for pound basis as the value of a pension has not been treated as cash. The result of the new pension rules may well be less discounting of the pension asset due to the fact that it is now possible to access more of the capital as a lump sum.
2. The pension share option might not be used as much if the divorced couple are over the age of 55 years as the new rules now mean that a lump sum from the pension pot can be used to compensate for the difference in pension values. In some cases the parties may even agree a cascading series of lump sums that could be drawn down whenever needed from the large pension fund over a period of time to compensate again for the difference in pension values.
3. New rules and the increased accessibility of the recent capital from the pension means that the options available are increased as the husband could decide to use a lump sum from the pension to re-house. Care must be taken to consider the tax implications in view of the fact that tax is payable if more than 25% of the pension pot is withdrawn.
Expert, professional advice is essential in all divorce settlements, especially where pensions are involved. For advice and support please contact your family team on 0113 320 5000 or email family@winstonsolicitors.co.uk.
