Hot Topic – Pensions and Divorce

I was talking to an IFA recently about the impact of divorce on pensions.  He had a client facing a potential pension sharing order and wanted to know how pension credits (the amount of benefit paid to the ex-spouse) and pension debits (the amount of benefit deducted from the member) affected annual and lifetime allowances.

It appears that since the order is made after A-day the following would apply:

1. A pension credit received from a registered pension scheme won’t count against the annual allowance of the ex-spouse.  The member whose fund has been reduced by the pension debit will be able to re-build those lost benefits (subject to the annual allowance).
2. A pension credit effectively becomes an asset of the ex-spouse and so is added to their overall pension entitlement and will count towards their lifetime allowance. (This is different if the credit is from a pension already in payment).
3. A pension debit does not count towards the lifetime allowance of the spouse who has shared their pension.  Only the benefits they actually get will count towards their lifetime allowance.

Pensions are never straightforward so it would be interesting to hear your comments on this and hear about any experience you have had with your own clients or if you’re sitting one of the J0 or AF pensions exams this week.