Divorce can have a significant impact on your financial future, especially when pensions are involved. Our advisers can help you understand your options and make informed decisions with clarity and confidence.
Contact an adviser for simple, valuable Pension advice.
Generally, one assumes that the largest asset of a family is the home but pensions can be as valuable and sometimes are even more valuable. It is, therefore, important that any divorce agreement addresses the division of pensions, as a court will look to take all pensions into account in its calculations and will assess all the assets of the marriage and try to divide them on a fair basis.
The capital value of a money purchase pension, where there is simply a pot of money invested, will be taken at its face value. This value would then be added to the value of the family home plus other pensions plus other investments, to give a value that the courts will decide a fair share on. They will also consider the available income position of each partner as part of their deliberation.
The capital value of a defined benefit pension (Final Salary or Career Average Pension Scheme) is more complicated and will be calculated by a court appointed actuary.
In simple terms….
Assuming it is a final salary scheme, with 25 years service, on a 60th basis and a current salary of £35,000, the calculation would be roughly as follows:
25/60 X £35,000 = £14,583 accrued annual income X 20 = £291,660 capital value.
Someone with 30 years service, on a 60th basis, and a current salary of £70,000 the calculation would be roughly as follows:
30/60 X £70,000 = £35,000 accrued annual income X 20 = £700,000 capital value.
You can see why pensions can be a valuable part of the divorce process.
Once the court decides that a pension must be shared, it will usually be required to be transferred to a new personal pension arrangement in the name of the person to whom it has been assigned to, and will then be invested appropriately.
In order to do this the new pensions scheme requires sight of certain court documents before the funds will be accepted, it is this process that generally requires a financial adviser.
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