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Pensions... Boring but Vital!

View profile for Andrew Kirkconel
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When I entered the profession too many years ago now to recall, family lawyers paid little or no attention to pensions.  Historically they were earned by a husband and on divorce the wife may have received a modest capital sum to compensate her for the loss of the future benefit but it often was very modest indeed and it was only many years later that the parties (were they still speaking) would realise the huge differential between their respective incomes.  Many of these old schemes were final salary and from the public sector even more gold-plated than they may be today. 

In the late 90s pension legislation was enacted to allow the Courts to make limited orders in favour of the other spouse but it was not until December 2000 that pension sharing as we now know it came into being so that it is now possible for a Court (and it can only be done by a Court Order) to take part of one spouse’s pension and give to the other so that they have their own fund.  Since 2000 pensions have played a bigger and more important part in the settlement of divorce cases and in many cases form the largest capital asset often exceeding the value of the matrimonial home after deducting any mortgage.

I hope it is the case that all family lawyers and most individuals who are unfortunate enough to go through a divorce are now aware of the importance of pensions and obtaining a fair share in the event of a divorce. 

Pensions have always been complicated but since April 2015 they have become even more complicated.  It is now possible to “cash in” your pension in full (subject in many cases to quite a significant tax charge) whereas prior to April it was only possible to take the 25% lump sum from the fund.  This has spawned a great deal of material and “offers” (some of it likely to be of dubious quality) about what an individual should do with this new found opportunity. 

For the most part however people should be very slow to consider cashing in their pension fund since it is almost certainly going to be the case that in the vast majority of families the taking of their pension by way of draw down or the conventional annuity route is going to be the most sensible and safe form of pension use.

Early advice

In any case involving pensions of some significance it is very important to engage the advice of a financial advisor experienced in pension schemes early on in the process.  One benefit of the new rules is that it may be possible to utilise substantial pension funds to provide capital (where previously none was available) to re-house the parties or buy off long term maintenance claims.  Depending on the income tax rates applicable to one or other of the parties the transfer of a pension under a pension sharing order might have significant benefits.  I stress once again that this sort of situation requires expert and early advice.  For couples with substantial pension funds there may be some significant benefit (to both) in careful management and division of those funds.


I flag up a word or warning here both to individuals and lawyers; as it is now possible (subject to the tax charge) to cash in the whole of your pension one potential risk in divorce cases is where an unscrupulous spouse who has a very large pension fund (say, £1 million) may decide to “cut and run”.  Provided he is over 55 he can elect to cash in his pension fund and if he happens to be a lower rate taxpayer could get his/her hands on £850,000 of liquid cash and disappear to another country where living is cheap and it is difficult or impossible to obtain any redress – let us say, somewhere in the Far East like Thailand.  I fully appreciate this is a highly unlikely scenario but it will happen particularly in a case where, say, there is a significant amount of debt (big mortgage, lots of credit cards) and the spouse with the pension fund may consider he/she just does not want to hang around.  It may be necessary for the solicitor and their client at a very early stage to consider taking some steps to protect that possibility occurring.  Prior to April 2015 that scenario just could not have happened; a spouse could have taken the 25% capital but the rest was untouchable.

I suspect a great deal of people (myself included) find financial planning and pension consideration extremely dull and put if fairly low on the list of priorities.  This of course increases as a priority the older you get and if you are unfortunate enough to be faced with divorce proceedings in your early to middle 50s then it becomes vital and much less boring. 

The message      

Take competent advice and take it early

For further information please contact Andrew Kirkconel or contact any of Dutton Gregory’s offices.