Equalisation of Capital Value - Pitfalls with Personal Pensions
We wish to split our pensions equally on divorce and this seems very simple on the face of it. Are we missing anything?
- Mr and Mrs Nicholls, both aged 55
- In the process of divorcing
- Agreed settlement of all assets except pensions
- Mr Nicholls, no pensions
- Mrs Nicholls has 4 personal pensions
1. Fund value £100,000 unit linked fund
2. Fund value £40,000 With Profits with MVA
3. Fund value £20,000 cash fund
4. Fund value £40,000 With Profits with GARs
- Initial idea, before advice, is Mrs Nicholls to retain Pension 1 and transfer 2, 3 and 4 to Mr Nicholls
- Mrs Nicholls retain 100% of Pensions 2 and 4
- Mrs Nicholls retains 60% of Pension 3
- Mr Nicholls receives Pension Sharing Order of 100% Pension 1
- Mr Nicholls receives Pension Sharing Order of 40% Pension 3
Benefits from advice given
- Equalises real value of pensions to both Mr and Mrs Nicholls
- Avoids MVA penalty being applied to Pension 2 (would have been reduction of 10% to 20%)
- Mrs Nicholls retains valuable Guaranteed Annuity rate on Pension 4 (this increases income on this plan by some 40%, effectively increasing the value of that plan by 40%.)
- If no advice taken, the result would be Mrs Nicholls would have pension fund of £100,000 but no Guaranteed Annuity rates. GARs on Pension 4 would be lost. Mr Nicholls would have pension fund of approximately £92,000 after MVA applied.
- Both would have lower pension incomes
- Advice is obtained from a Resolution accredited specialist adviser
- State pension “substitution” is undertaken via Scrutton Bland
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This example is for illustrative purposes only, based on current legislation and tax allowances. Tax rules and regulations are subject to change.