On 22 November 2023 the chancellor, Jeremy Hunt, unveiled plans that could eventually give pension holders one pension pot for life.
Accountants and independent financial advisors are all questioning how easy it will be to bring in the scheme for UK workers. However, family law solicitors at Evolve Family Law are delighted by the news because if the proposals are implemented it will make it easier and cheaper for divorcing couples to share pensions as part of their financial settlement.
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Pensions – the forgotten asset in divorce proceedings
When you separate or start divorce proceedings you also need to reach a fair financial settlement with your estranged husband or wife to divide and share your assets.
You will not forget the existence of the family home or a shareholding in the family business but you may forget to disclose an old pension and your husband or wife may not realise that you have 2 or more pensions.
The Pensions Policy Institute estimates that the total value of lost pension pots was almost £27 billion in 2022. That is not surprising with so many people moving jobs and homes and not keeping records. It is also equally unsurprising that pensions get forgotten in divorce proceedings.
The Fair Shares project, funded by the Nuffield Foundation, provided information and data on divorcing couples. Their recent research highlights that about a third of divorcees did not know the value of their pension fund and only a tenth of pension pots that were not in payment were made the subject of pension sharing orders.
The research information from the Fair Share Project emphasises the need for divorcing couples to understand the value of pension pots and how they should not be ignored in divorce financial settlements.
Pension pots and financial disclosure in financial settlement negotiations
If you do not disclose an asset when providing divorce financial disclosure, including a pension, your husband or wife may be able to ask the court to review the terms of a financial court order years later because of the non-disclosure.
It is therefore essential to provide full financial disclosure even if you have several small pension pots from employment prior to your marriage.
Think how much easier it would be for divorcing couples and their family law solicitors if a husband and wife each only had one pension fund. Now a husband and wife can each have 5 or more pensions, all of which need to be disclosed and valued as part of the financial settlement negotiations.
The portable pension pot
The chancellor is proposing one pension pot that an employee takes with them when they change their employment. Whilst employers and pension providers are already flagging up the complexities of portable pension funds family law solicitors can only see the advantages.
With numerous small pension pots, it takes time for pensions to be disclosed and valued as part of divorce financial settlement negotiations. When pension pots are small a husband or wife can be encouraged to ignore their value because the pensions are ‘’not worth the hassle’’. That is often not the case but spouses can be persuaded to ignore them.
Even if a small pension is disclosed and valued a husband or wife may be told that it is uneconomic to share the pension because the pension administrators will charge to implement a pension sharing order.
The lifetime pension pot
The Treasury will be asking for evidence on the “lifetime provider” pension model rather than adopting a policy of portable pensions straight away. It is likely to be some time before the consultation starts and even longer before further pension reforms are made.
Until we get to the age of the lifetime pension pot it is essential to disclose all your pension pots when getting divorced and to understand your pension options when negotiating a divorce financial settlement.
Pension sharing orders
The family court can make a financial court order that includes a pension sharing order. The pension administrator will need to implement the pension sharing order once they are served with the financial court order, pension sharing annex and the final order of divorce.
If the value of a pension is small then it may be uneconomic to share all the pensions. Instead, your family law solicitor may suggest that you get a 100% share of one pension pot rather than pay a pension admin fee to share each pension. That may work for you provided that the pensions are valued correctly. For example, the transfer value of a private pension pot may be the same as a final salary scheme pension but the eventual pension returns may be very different. That’s why you need specialist input from a divorce solicitor and pension actuary or advisor.
A pension sharing order is not your only option. You could agree to offset the value of pensions so you get more from the equity in the family home or you get to keep all your pensions but your spouse gets to keep their savings.
Get help with your divorce financial settlement
Evolve Family Law provides a fixed fee no-fault divorce service and offers a relationship breakdown consultation for a fixed fee to discuss your relationship breakdown and offer initial guidance.
Our ‘relationship breakdown comprehensive initial review’ is priced at £300 inclusive of VAT. It covers one meeting with a qualified lawyer and an assessment of the best routes to resolving your situation.
If you want to know where to start with your separation or divorce or your divorce financial settlement our specialist divorce solicitors can help.
For information on our fixed fees and pricing have a look at Our Prices | Standard Fixed Fees.
For friendly expert family law advice call our team or complete our online enquiry form.