Pensions are a complex area of financial planning; not only are there many types of pensions, but different legislation applies to the various types of pensions. To make things worse, pension legislation continuously evolves, adding further complexities. Divorce is a distressing time, and the importance and value of pensions are often overlooked due to the uncertainty and confusion that lies with such matters.
Research has shown that people are reluctant to consult Financial Advisers – a recent Legal & General report suggests that only 3% of divorcing couples take pensions into account when navigating their options.
This lack of guidance can be problematic, as pension pots are valuable assets, usually second only to the family home. Given the significant value of some pensions, it is essential to not only to take professional advice when dividing the assets, but also in respect of long-term planning following divorce.
Observations are that often one party in a relationship values the security of home ownership above the security of a retirement income, as they do not understand the real value of the share of the pension they could be entitled to. Admittedly, there may be practical reasons for this, especially if a couple has children.
There is no requirement to share pensions in a divorce and often couples come to an informal agreement without the involvement of a court order. Our view at Tideway is that everyone should get expert advice, because individuals should fully understand their options and rights, to ensure an informed and fair settlement negotiation.
Whilst it is vital to seek legal advice, involving a financial planner may help achieve balance in a divorce settlement and greater optimisation of your savings over the longer term.
Experienced Financial planners should be well equipped to understand the intricacies of all types of pension schemes. Cashflow analysis and financial forecasting are effective tools and discussions that will include a deep dive into additional features of retirement schemes, such as:
- The value of any guaranteed payments
- Guaranteed annuity rates
- An analysis of a Defined Benefit cash equivalent value
- Inflation/Indexation features in payment
- Lifetime Allowance Implications
- Other taxation consequences
- Death benefits payable
- The interaction of state pension benefits
There are three main ways of splitting pension assets:
- Pension Sharing Orders
- Earmarking (also known as attachment order); and
- Offsetting.
Each method has advantages and disadvantages; for further reading and insight on these different approaches read our guide to the Treatment of Pensions on Divorce.
Many divorcees say their divorce has made them more likely to seek financial advice to make confident decisions about their future.
Do not hesitate to ask your questions now. One of our experts will happily assist you. Make an Enquiry
