Breaking up is hard to do when a pension is at stake

Attempts to legislate for a fair split of funds when couples divorce have become bogged down.

Divorce is by definition a very stressful experience, complicated by the financial worries modern break-up involves. Unfortunately the second reading of the Family Law Bill just before Easter will have increased stress levels still further. It should have tackled the thorny question of pension-splitting at the time of divorce. But the matter is still not at all clear and it seems likely that it will be at least a further two years before the result of a new round of consultations is known.

Pressure groups like "Fairshares" have campaigned for pension funds to be split at the time of divorce so that both partners have separate entitlements which they can then manage to suit their own requirements.

The Government has argued against the principle of splitting, mainly on the grounds of cost.

After a vote in the House of Lords last year, however, the Government appeared to have accepted the principle, only to cast fresh doubt on its intentions last week. Effectively it has delayed the introduction of the 1995 Pensions Act until July this year and postponed any decision on pension splitting for at least two years and maybe longer. In the meantime, divorce settlements will continue to try to trade off actual assets against future pension entitlements in order to reach a satisfactory settlement.

Until the situation is clarified Fairshares has advised anyone about to embark on divorce proceedings to wait until July before taking any action. After this date the group maintains that any new petition will be able to take advantage of the "earmarking" provisions, but this does not solve the problem of achieving fair and final financial settlements which include a proper treatment of the pension issue.

This has a long and complex history. The courts have been able since 1973 to order maintenance payments to an ex-spouse, payable from the former partner's income, including pension. However district judges have hitherto dealt with matrimonial pension rights only if the subject is raised before them in evidence. The new Pensions Act will oblige solicitors to bring the subject before the courts in all divorce cases where the pension is due to come into payment after April 5, 1997.

From July courts will also be able to "earmark" future pension rights and order a pension scheme to pay the relevant amount from the member's pension to the ex-spouse, including any lump sums associated with it. But only after he retires.

There are obvious drawbacks to this state of affairs, especially if the pension holder remarries or dies before retiring. It reintroduces the principle of delaying final settlements and reverses the thrust of the clean-break policy which has been the basis of legal guidance for the past decade. The adminstrative burden of keeping track of ex-spouses over a long period could also pose costly and difficult problems for pension fund trustees and administrators.

For example, pension schemes often provide an element of life assurance to cover the member if they die before retirement. Such a lump sum will often provide the difference between achieving a reasonable standard of living or struggling on a limited budget.

Once a spouse becomes an ex-spouse, however, the pension fund administrators could ignore them completely and any benefit payable under this heading will pass directly to the estate of the deceased former spouse.

Although there still seems to be agreement in principle to provide legislation to enable the basic theory of pension-splitting at the time of divorce, the Government has now decided to publish a Green Paper, hopefully by the summer, which will set out further options on how this can be done. The implementation of these could still be some years away.

The most important issue is fairness - whatever the power struggle within the marriage. Equally, the division of a pension or any other major asset, should be carried out as fairly as possible. This means giving as little chance as possible that either partner can do anything in the interim negotiation period to endanger the final "fair" outcome.

The longer this interim period and, more relevantly, the longer the delay to the Government's decision-making process, the bigger the chance of corruption - assets can all too easily be dissipated, especially by a bitter and stressed individual who is ready for a fight.

Many people are astonished to realise that the value of the pension is often greater than the equity of their property, but not many realise how easily the assets in the pension can disappear (in one individual's favour), unlike the bricks and mortar equivalent. The new Income Withdrawal Plans are a good example - giving a pension policyholder the opportunity to strip large chunks of income from their fund, as well as some tax-free cash before the splitting takes place.

In the meantime Seymour Smith an association of lawyers, pension experts and actuaries, has launched a personalised report service which provides a value for the pension of each partner which can be taken into account at the time of the divorce. These independent reports are based on sound legal and actuarial parameters and, importantly, they can form part of the crucial "court bundle" without any amendment. They draw attention to the financial assumptions as well as to potential pitfalls and shortcomings. Bearing in mind the number of people who also depend on legal aid, the report service also provides an alternative for cases where the amounts at issue are relatively modest. Not surprisingly, the reports have quickly been established as a standard in courts.

The reports may not be the definitive solution to solving the problems of complexity and legislation, but for many people who are suffering with the prospect of another two years of uncertainty, we think our efforts will go a long way towards reducing the stress and providing the essential guidance needed.

Ann Kosniowska is project director of Seymour Smith. Tel: 01203 697697.

Start your day with The Independent, sign up for daily news emails
News
Disruption at Waterloo after a person was hit by a train
newsCancellations and disrupted service after person hit by train
News
Kirsty Bertarelli is launching a singing career with an album of songs detailing her observations of “real life”
news
News
The show will be billed as Clarkson, Hammond and May Live
people
Arts and Entertainment
The almost deserted Liverpool Echo Arena on Monday
tvCan X Factor last in the face of plummeting numbers auditioning
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search
Put the phone down on the coldcallers who see pension liberation as an opportunity to liberate your pension from you

Pension freedoms: How to deal with cold calls from scammers

Sean O'Grady offers advice on keeping your money safe
Switching to a better bank account is much easier than it used to be

More people are switching current accounts – but what do the figures mean?

Experts disagree about the 7% increase over the past year

The chance of getting what appears to be free money can be hugely attractive, especially to first-time buyers who can be fooled into thinking it’s extra cash to buy the essential new items they need for their dream home.

Beware the boom in cashback mortgage deals

Too many mortgages are being sold with misleading gimmicks

The firm’s revenues slumped by a third to £217 million in a disastrous 2014

Wonga results could get even worse this year, chief admits

The firm’s revenues slumped by a third to £217 million in 2014

The cost of a buildings policy has dropped by 10.1 per cent over the year, with the cost of a contents policy falling by 8.2 per cent

Simon Read: Mild winter cuts the cost of home insurance

The average quote for a buildings and contents policy has fallen by 3.6 per cent

Don't count your retirement money yet: employers will stop receiving a pension rebate next year and their staff may lose out

Defined-benefit pension schemes: Rebate change in 2016 may leave you out of pocket

Employees in defined-benefit schemes are held up as the lucky ones, but the state pension scheme will be overhauled in April 2016
Labour will raise the national minimum wage to more than £8 an hour by October 2019 (EPA)

Barclays new Blue Rewards hands cash to customers. What’s the catch?

Joining Barclays Blue Rewards costs £3 a month but then lets customers in for handouts of up to £15 a month

New research reveals that despite the recovering economy, four out of five low-income households have seen no sign of their financial situation improving

Hard-up families could be eligible for financial help

A charity is urging anyone struggling financially to see if they could get help from the state

When is the best time to buy foreign currency?

Video: With an election looming, a hung parliament could hit sterling

General Election 2015: Vote for the party that will boost your finances

Experts warn that the general election is unlikely to lead to stable markets. Simon Read talks to two investment managers who are advising caution

Make the most of your money in 2015-16: The end of the tax year is the beginning of the next...

The new tax year brings with it a raft of new rules and regulations

General Election 2015: Will pension reform be a major factor?

Video: Tom McPhail, head of pensions at Hargreaves Lansdown, says May's outcome could alter your pension

General election 2015: David Cameron's promise brings uncertainty to investors

Video: Simon Read talks to Fidelity's Tom Stevenson

  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Financial Adviser

    £20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

    SThree: Graduate Recruitment Resourcer

    £20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

    Guru Careers: Application Support Analyst / 1st Line Support

    £25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

    Guru Careers: .NET Developer / Web Developer

    £45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...

    Day In a Page

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    How a costume drama became a Sunday night staple
    Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

    Miliband promises no stamp duty for first-time buyers

    Labour leader pushes Tories on housing
    Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

    Aviation history is littered with grand failures

    But what went wrong with the SuperJumbo?
    Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

    Fortress Europe?

    Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
    Never mind what you're wearing, it's what you're reclining on

    Never mind what you're wearing

    It's what you're reclining on that matters
    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence