The First-tier Tribunal (FTT) has found that a repayment of Income Tax due to a taxpayer who had died during the relevant tax year formed part of her estate for Inheritance Tax (IHT) purposes. The taxpayer had died on 18 December 2020. Her son, who was...
Pensions are valuable assets within a marriage. The way a pension is divided following the breakdown of a marriage is not straightforward. This is partly due to the substantial reform and changes to public sector pensions over the last couple of years.
NHS workers, police, armed forces, civil servants, fire service and teachers are all entitled to a public sector pension. These pensions differ to the type of pension offered to those working within the private sector (such as professional services).
In 2015, the Government moved most public sector pension members from a final salary scheme into a career average scheme. This impacted most public sector pension members retrospectively and the changes were applied across the board, not just to those new to the scheme.
During the divorce process, a pension should be disclosed alongside the cash equivalent value of the pension (known as a CETV). The CETV is the estimated cash value of the pension at the time the CETV is produced if the pension were to be transferred out of the pension scheme. Despite the rules stipulating CETVs in connection with a divorce should be provided within 6 weeks, the reality is very different due to backlogs. It is important to request an updated CETV as soon as possible to prevent delay. The delays with Teachers’ Pensions has been widely reported with some CETV statements taking more than 12 months to be produced.
When considering how to split a pension, there are various options available, such as :-
- A pension sharing order – this allows the partner (who is not the pension member) to receive a share of the pension’s benefits. This is a common arrangement when dividing a pension. The partner will receive a percentage of the pension available, rather than a fixed sum. The percentage must be invested into a pension fund separate for themselves.
- Earmarking orders – this is also known as a pension attachment order and is rare. This enables the individual with the pension in their name to retain the pension but arrange for the other party to receive payouts, either via installments or a lump sum, from the pension.
- Pension offsetting – this is where a party will retain their pension and the other party will not receive a share of the pension, rather they will receive a greater share of another asset from the marriage (such as a greater share of the equity in the family home).
It is important to note that a public sector pension will often contain valuable benefits that will require specialist advice when considering them as part of the overall financial settlement. The following also need to be considered:
- the different retirement ages of the parties,
- potential age disparity between the parties and
- any discounts that may need to be applied if the pension scheme member leaves early.
A specialist is usually required when considering pensions, known as an Actuary.
An Actuary can provide expert advice on various key factors, such as, a pension sharing calculation to achieve equalization of the pension income and capital value in retirement, a pension sharing calculation that takes into consideration the relationship accrual of the pension only (i.e. only taking into account the pension from the date of cohabitation/marriage to the date of separation).
Another point to consider is the death in service element of the pension, which is offered by many employers. A death in service benefit means if the individual unfortunately passes away during their employment, the employer will make a payment to a nominated person (usually, but not always, a spouse). As such, it is important to cancel or update this nomination on separation. It may be that should there be any children from the marriage, the death in service benefit is updated for the benefit the children (though this is entirely discretional).
If you are thinking about separating, or you may be contemplating a divorce, and you are worried about your public sector pension or private pension, our family law solicitors at Tanners have considerable experience and would be happy to provide you with guidance.
Speak to our family law solicitors today
For help with any aspect of divorce and pensions in Cirencester or Cheltenham, please get in touch by calling 01285 659061 or using the contact form at the top of the page.