The front page of today’s Daily Telegraph warns that those with pension earmarking orders should take urgent advice to ensure that any financial order obtained in divorce or judicial separation proceedings adequately protects their interests.
An unexpected consequence of the recent pension legislation reforms is that those with earmarking orders could potentially be at risk of losing benefits unless their orders are drafted properly.
Earmarking orders typically provide for a percentage of the lump sum to be paid or a percentage of the income at the time of retirement. As the pension remained in the sole name of the individual, the control of when such benefits were taken were out of the hands of the individual with the benefit of the order.
At the time most pensions provided for a cash lump sum to be taken and for the remaining fund to be used to purchase an annuity. But the new reforms mean that individuals can now take out the whole fund subject to a relevant tax charge.
This could mean that an embittered spouse could seek to deprive the other by withdrawing the fund as capital so that no fund remains to purchase an annuity or income stream. This may seem extreme, given the tax consequences that may follow. But unfortunately some spouses will go to considerable lengths to prevent the other getting assets.
Earmarking orders were introduced in 1996 and at the time provided a way for spouses to secure an interest in the other’s pension benefits. These orders were replaced from 1 December 2000 with the introduction of pension sharing.
However, for those who divorced after 1 July 1996 but before 1 December 2000, or for those with a judicial separation after 1 July 1996 who secured an earmarking order, it is worth checking the terms of the order. This is to ensure that the pension benefits to be shared are adequately protected in light of the new pension freedoms, which were clearly not considered possible 20 years ago.
Please contact me on 0333 00 60847 or by email firstname.lastname@example.org with a copy of your order to ensure that the appropriate safeguards are in place.