Last summer the Pension Advisory Group (PAG) published its essential guide to the treatment of pensions on divorce.
The PAG’s aim was to outline the most critical legal, actuarial and practical issues facing practitioners and divorcing couples regarding pensions.
Pensions have sometimes been a devalued part of settlement negotiations, and a misunderstanding around pension values and benefits to either party during a divorce continues to expose lawyers to risk.
There are damaging implications for lawyers who get it wrong on pensions, and below I outline five key areas that family lawyers should be mindful of when advising clients:
Pension specific information
Clients should be given information about specific features of their pensions, including but not limited to:
- types of pension;
- retirement ages;
- benefits lost on pension sharing;
- pension fund charges;
- moving target syndrome;
- clawbacks, and
- income gaps.
Lawyers should seek advice on the significance of these details and to help identify inherent risks.
The Pension Sharing Annex (Form P1) – Regulated advice
Solicitors are warned not to give financial advice. However, when completing section F of the pension sharing annex they could inadvertently be providing financial advice. It would therefore be prudent to seek the opinion of a regulated financial adviser when considering pension sharing.
PAG recommends that parties need to have clearly understood the following matters which are often intrinsic to a divorce involving pensions:
- the implications of Pension Freedoms 2015;
- complications concerning final salary schemes and their cash equivalent values;
- unfunded Defined Benefit schemes;
- closed schemes, and
Helping to instruct your chosen expert
PAG recommends that the possible instruction of a pension on divorce expert (PODE) should be considered as early as possible. Specialist financial advisers can also act as a shadow expert or a financial neutral and help with an early evaluation of complex pensions matters such as:
- to help the client identify their financial outcomes;
- to give advice as to whether a pensions report is necessary, and if so,
- to advise what questions family solicitors should ask of the PODE,
- to provide advice on the contents of any report,
- its implementation, and
- a destination scheme where appropriate.
Lifetime allowance issues
The lifetime allowance (LTA) usually involves regulated financial advice. PODEs may find that this sits outside the scope of a report, and the lack of attention towards LTA issues can cause unnecessary tax liabilities for pension members in receipt of a pension sharing credit. A specialist financial adviser will help to mitigate this problem by reviewing the position of both spouses to assist the parties to effectively negotiate in the knowledge of the tax consequences.
The Brewin Dolphin family accreditation provides a robust syllabus of training and testing to our wealth advisers. Those who hold the accreditation have received training from experienced family law solicitors, barristers and pension on divorce experts. The purpose of the accreditation is ensure our wealth advisers are able to offer clients tailored advice during a relationship breakdown, and to work with solicitors either as a financial neutral or a shadow expert to add value during the financial remedy process.
The value of investments and any income from them can fall and you may get back less than you invested.
Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.
The opinions expressed are not necessarily those of Brewin Dolphin Ltd.
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