Published: 11th May 2015
Divorcees who have previously set up pension earmarking orders have been urged to protect their pension benefits, due to unintended consequences that have been brought about by pension reforms.
Earmarking orders provide ex-partners with a fixed percentage of their partner’s retirement pension income, however, new pension freedom regulations which allow retirees to withdrawn their pensions as a lump sum as opposed to taking it as a retirement income could mean that some divorcees find themselves left with nothing.
Wealth Management firm Old Mutual Wealth are urging all divorcees with pension earmarking orders to check their agreements to understand how the new pension reform could possibly impact them. If they have a pension earmarking order, they need to check whether their rights are protected, should their ex-partner decide to withdrawn their pension as a lump sum and if this is the case, they should seek professional advice to determine whether the earmarking order can be amended.
Pension Expert from Old Mutual Wealth, Jon Greer said, "A number of people would have set up pension earmarking when it first became possible, around 20 years ago, and the majority of these orders would have been for the benefit of the ex-wife."
"It is important that these women act promptly, especially if their ex-husband is approaching retirement age, to check their earmarked rights are protected. They need to ensure that where they have a right to a percentage of the retirement income they receive the same benefit if their ex-husband takes all the pension money out as cash instead of as an income."
Pension reforms haven't only affected earmarking orders, but have also affect anyone with a self-invested personal pension (SIPP) which allows investment into a variety of assets. Pensioners now have the ability to withdraw all funds from their personal pensions without an annuity and can take up to 25% of their pension tax-free.
This change in pension regulation could affect business owners who have SIPPs invested in assets like commercial land or property. If a divorce resulted in an order to share their pension with their ex-partner, the ex-partner could then withdraw their entitlement in cash, which could potentially force the sale of any commercial land or property in order to fund the payout.
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