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Figures supplied by the Ministry of Justice show an increase of up to 50% in the number of divorce petitions filed in the first quarter of every year. This trend looks set to continue in 2008, reflecting an increase in divorces coinciding with the post-Christmas blues.
In addition, new rules to make pensions fairer when couples break up are not being exploited by women, despite much publicity surrounding their introduction six years ago, following the Welfare Reform and Pensions Act in 1999. According to advisory firm Killik & Co, this failure to adopt the new pensions-splitting rules, so each partner gets a fair share, is creating a pensions underclass amongst women.
Since the rules were introduced in December 2000 there have been over 1 million petitions for divorce, yet figures from the Department of Constitutional affairs reveal that between October 2006 and September 2007 only 8% of divorcing couples obtained pension sharing orders. This is a slight rise from between December 2000 and December 2006 when 6% of cases had some kind of pension sharing or pension attachment orders. The trend is on the rise, but there is still a long way to go.
Commenting on these findings, Malcolm Cuthbert, Managing Director, Financial Planning Division at Killik & Co says: "We receive many more client enquiries relating to divorce in the New Year - possibly because of the stressful Christmas and New Year period. With such a dramatic increase in divorce petitions in the New Year period, pensions are a major cause for concern, specifically for women."
Since A-Day, in April 2006, when the then pensions scheme was shaken up, rule reversals have taken place regarding divorce, meaning that the majority of divorcees will be able to rebuild pension rights within the tax-approved pension system.
The changes include:
The amount of pension share will now act against the recipient of the Lifetime Allowance (LA) rather than the donor's as in the past. For example, if having divorced, the husband makes payment into both his and his former wife's pensions, only the contributions to his pension count towards his LA. Contributions to his wife's pension will count against her allowance and not his as they would have under the old legislation.
Any pension donor can apply for an increase in their LA to offset any pension credit entitlement to an ex.
A pension credit to an ex-spouse counts towards their LA.
Prior to the pensions splitting legislation being introduced, earmarking was allowed under the Pension Act 1995 to cover pensions in divorce. This entitled a divorcee to a proportion of their spouse's pension, but they would have to wait for their spouse to take their pension and they had no control over the benefits earmarked to them.
Cuthbert continues: "The legislation is there to allow the value of a pension, along with other assets, to be split fairly after marital breakdown and provide a clean break and lawyers and judges should not underestimate the importance of it.
"We appreciate that, in some cases, pension sharing is not a viable solution due to the cost of implementing an order and a low cash equivalent transfer value that is not a true reflection of the fund value.
"However, many judges who are not so familiar with pension sharing have relied on the old system of splitting assets, either by earmarking or offsetting, which may not work in women's favour.
Cuthbert adds that offsetting the matrimonial home against the pension or using an earmarking scheme will leave the wife with, worst case scenario, no pension for herself, or at best, with an arrangement controlled by their estranged partner.
04 January 2008 © Moneyextra.com
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