Will pension reforms ease the burden for silver separators?
As new laws allow the over 55s to take cash from their pension pots, research reveals that divorced people retiring this year will be financially worse off than their married peers.
According to a new study, one in three (35%) of this year’s retirees have experienced a divorce. They could lose £2,100 in retirement income, and one in five will retire with outstanding debts averaging £22,100.
The research, which also found that divorced people are more likely to delay retirement, follows hot on the heels of legislation allowing over 55s to access their pension funds.
On paper the new pension rules seem to give people greater flexibility on how to use their money – and up to 25% of the fund can be drawn down tax free.
Some financial advisers have even suggested that the pension changes will benefit those whose marriages have broken down – particularly the so called ‘silver separators’. They argue that the fact that older people can access their entire pension pot could help to prevent the sale of a house, or provide the cash to buy a new property.
However, not only does pension money spent earlier reduce income for later in life, but the tax implications for taking out cash could be substantial – calculations in the Daily Telegraph show that more than £50,000 in tax could be payable on a £200,000 pension pot.
A pension fund can be one of the most complex assets separating couples have, and the issue of how – and if – it might be divided can be very complicated. The main options are:
• Offsetting – where the value of the pension is balanced against another asset – usually the family home. The person accepting the house then gives up all future rights to their partner’s pension.
• Attachment is where a percentage of a pension is set aside for an ex-spouse.
• Pension sharing is a way of having a clean break with a percentage of a pension being transferred into a separate scheme in the name of a former wife or husband.
Will the supposed flexibility offered by the pension reforms give financial advisers and family lawyers greater freedom to find a solution that works best for both parties in a divorce? Might courts take the view that pension pots are just another form of savings accounts?
Our experienced team of specialist lawyers at Jones Myers will be looking at the full implications of the new pension reforms for divorcing couples over the coming months.
If you have any queries about an existing divorce settlement, or need advice on any financial aspect of separation or divorce please call us on 0113 246 0055, leave us a comment below or drop us an e-mail.