Pension reforms simplify ‘Silver’ divorces

Pension reforms simplify ‘Silver’ divorces

Gettyimages 697853664 WEB
Julia Grimes
Published: 18 May 2015 Updated: 03 May 2016

With an ever increasing number of retirees separating and divorcing, David Smith, Financial Planning Director at Tilney Bestinvest, looks at the impact the new Pension Freedoms are likely to have:

“The new Pension Freedoms should make divorce settlements far more straightforward for the over 55s. To date the biggest problem with divorce settlements has been the fact that the largest assets are typically pensions and property. This has proved a serious issue as pension funds have been of limited immediate value in the past; after all, only 25% could typically be taken as a lump sum with the remaining 75% having to be used to provide a capped level of income.

“This created an anomaly in that both parties would consider a property worth, say, £500,000 as potentially more valuable than a £500,000 pension fund. After all, the property is of tangible value and could be sold at any time, whilst a £500k pension fund could only generate a tax free cash lump sum of £125,000 and the remaining pension pot might have generated an income of as little £20,000 per annum gross. Settlements in such situations were therefore invariably difficult and would often result in the pension being split and the property being sold with the proceeds subsequently distributed – an outcome neither party often desired.

“Moving forward however and today’s pension funds have far more ‘real value’; 25% can still be taken tax free, whilst the remaining 75% can be taken as a one-off, or series of uncapped payments. Of course any payments in excess of 25% will be subject to income tax but at least the new pension reform rules allow pensions to be valued as capital assets rather than income-producing assets.

There are three ways in which pension benefits can be dealt with as part of a divorce settlement; offsetting, earmarking or sharing:

1. Offsetting
“This is the oldest and still most commonly used method of dealing with pension benefits. Quite simply, the couple keep their own pension rights with the value being offset against other assets – so if the husband has significant pension rights he will keep these in their entirety but his spouse will get a larger share of other assets, for example the marital home, to reflect this.”

2. Earmarking
“Pensions earmarking is effectively a form of deferred maintenance payment. Therefore, all or part of the pension benefits of one party are ordered to be paid to the other spouse. When a pension earmarking order applies, the pension paid to the ex-spouse will be taxed at the rate(s) appropriate to the member. Furthermore, earmarked benefits are assessed against the member’s lifetime allowance.”

3. Pension sharing
“Typically a pension sharing order will result in the ex-spouse receiving a proportion of the member's pension fund. Depending upon the scheme providing the member’s benefits, the sum to be shared may either be used to provide benefits for the ex-spouse under the member’s scheme or be transferred to a scheme of the ex-spouse’s choice.

“The new rules should mean that many divorcing couples are no longer, in effect, forced to sell property: pensions now have a real tangible capital value so the distribution of assets should become far more straightforward. Unfortunately however, if one or both of the parties are members of an unfunded Statutory Scheme such as the Civil Service Scheme, the same old problems still exist, as such arrangements are not subject to the Pension Reform rules.”

For further comment on this issue David Smith can be contacted on 0191 269 9970 /
- ENDS -

Important Information:

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This press release does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers.

Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change.

Press contacts:

Jason Hollands
020 7189 9919
07768 661382

Matthew Gray
020 7189 2492

About Tilney Bestinvest

Tilney Bestinvest is a leading investment and financial planning firm that builds on a heritage of more than 150 years. We look after more than £9 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.

We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.

We have won numerous awards including UK Wealth Manager of the Year, Low-cost SIPP Provider of the Year and Self-select ISA Provider of the Year 2013, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.

Headquartered in Mayfair, London, Tilney Bestinvest employs almost 400 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.

The Tilney Bestinvest Group of Companies comprises the firms Bestinvest (Brokers) Ltd (Reg. No. 2830297), Tilney Investment Management (Reg. No. 02010520), Bestinvest (Consultants) Ltd (Reg. No. 1550116) and HW Financial Services Ltd (Reg. No. 02030706) all of which are authorised and regulated by the Financial Conduct Authority. Registered office: 6 Chesterfield Gardens, Mayfair, W1J 5BQ.

For further information, please visit:

Follow Tilney @bestinvest on Twitter


This release was previously published on Tilney Smith & Williamson prior to the launch of Evelyn Partners.