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Uniformed Services - Income Gap Syndrome

Uniformed Services - Income Gap Syndrome

I am divorcing and wish to split my Police pension fairly with my wife but both of the normal options are very unsatisfactory, or seem unfair. Is there another way?

Client Circumstances

  • Mr and Mrs Coward, both aged 57
  • Divorcing
  • Agreed settlement of all financial assets except pensions
  • Want to equalise income in retirement
  • Mr Coward retired police officer, pension in payment £20,000 pa net
  • Mrs Coward, housewife with no other income
  • Would like to achieve a clean break

Various Solutions

(None really satisfactory)

1 - Attachment Order

  • Mr Coward qualifies for full pension, but 50% of net paid to Mrs Coward (£10,000 pa each)
  • No clean break
  • Ceases on Mr Coward’s death (suitable life cover very expensive)
  • Ceases on Mrs Coward’s remarriage

2 - Pension Sharing Order

  • 50% pension transferred into Mrs Coward’s name
  • Mr Coward’s income immediately reduced to £10,000 pa
  • Mrs Coward cannot draw her pension until age 60
  • Mr Coward needs to pay maintenance to Mrs Coward for 3 years from reduced income or pay more cash to compensate
  • No clean break for 3 years
  • No clean break for 8 years Order of 40% Pension 3

Recommended Solutions

  • Defer Decree Absolute until Mrs Coward age 60 (3 years)
  • Mr Coward continues on full pension
  • Agree maintenance payment of 50% net pension income for three years
  • Agree to apply PSO at Mrs Coward’s age 60
  • Agree apply for Decree Absolute in 3 years
  • Consider entitlement to on-going Spouse’s benefit and/or life cover

Benefits from advice given

(Still not ideal)

  • Avoids income Gap Syndrome
  • Maintains total joint income of £20,000 (£10,000 pa each) for next 3 years
  • PSO implemented in 3 years - both have approximately £10,000 pa pension in own right
  • Clean break achieved in 3 years
  • 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.

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