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Equalisation of Capital Value - Pitfalls with Personal Pensions

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?

Client Circumstances

  • 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

Recommended Solutions

  • 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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