Government plan pension amendments to stop divorcees exploiting loopholes

Published: 2nd June 2015

The Government are proposing plans to amend pension regulations that came into effect earlier in the year, as they fear that divorcees are exploiting loopholes in the new system which could leave their ex-partners with nothing.

George Osborne announced changes to pension regulations in April which allows retirees to take their pensions in a lump sum, rather than using it as a monthly income following their retirement. This move has an unintended consequence which means that if an ex-partner has a pension earmarking order to receive a fixed percentage of their partners pension, they could be left with nothing should their ex-partner withdraw their pension in a lump sum.

In response, the Department of Work and Pensions have said they will clamp down on anyone who intends to exploit this loophole, by changing the rules.

"Where people have entered into a legal arrangement to give some of their pension saving to another person, then this must be honoured", a spokesperson for the DoWP said.

We covered this issue in a previous blog, warning divorcees to check their pension earmarking orders to ensure that the pension reform won't leave them out of pocket.

Pension earmarking orders were popular around 20 years ago, mostly to ensure that the ex-wife has a share of her ex-husbands pension in order to establish financial stability in the future, once their ex-partner has reached retirement age.

If you have a pension earmarking order, it is advised that you check if you have the right to a percentage of the retirement income and receive the same benefit should your ex-partner decide to take their pension money out as a lump sum rather than an income.

The pension reforms have not only affected pension earmarking orders, but also anyone with a self-invested personal pension (SIPP). Anyone with a SIPP could potentially have a variety of investment assets in their personal pension like land or commercial property, so if an order was agreed to share their pension with an ex-partner, the ex-partner could withdraw their entitlement, forcing the sale of any land or commercial property to fund their ex-partners share of the pension payout.

This could potentially effect business owners with commercial property or farmers with commercial land as part of their pension and could have a detrimental effect on their businesses and livelihoods.

If you are thinking about separation and are concerned about your finances in the future then K J Smith Solicitors are here to help. We have many years of experiences in dealing with all matters relating to finance and divorce and we will always ensure that we provide the best advice for your situation. To discuss your circumstances with us, contact us today to arrange a free 45 minute consultation on 01491 630000 (Henley on Thames), 020 7070 0330 (London), 0118 418 1000 (Reading), 01753 325000 (Windsor) or 01256 584000 (Basingstoke) or email

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