The complex world of Pensions, an asset that tends to be overlooked during a Divorce, can sometimes be a struggle to decipher.
Amid the stress and emotions of a relationship breakdown, it’s vital for both parties to keep a clear head and take pension assets into consideration.
All pension assets – including any pensions already being paid and benefits that have built up – should be taken into account when dividing finances on divorce. Pension funds can then be split, for example, or the value used to offset against other assets in a settlement.
Yet a report by insurer and pensions firm Scottish Widows found that pensions are only discussed in about 30% of cases.
The benefit of Cash flow analysis helps simplify the settlement and will give an understanding of how much income a pension will provide after divorce in retirement, and more importantly, how sustainable this is for the rest of your lifetime whilst helping to provide the income desired or required.
Cash Flow forecasting is not only of great importance in pre-divorce proceedings, but equally as important post-divorce.
A good Independent Financial Advisor should regularly review the pension if and when a Pension Sharing Order is implemented to help ensure the transferred pension and any income stream provided remains on target and fit for purpose within the constraints of individuals’ objectives.
It should never be left to chance as it is frequently the largest source of post-divorce income with individuals who have not accrued enough credits for a full state pension.
You should never forget the importance of the valuable benefits and commencement date of state pensions. Especially given the many changes over recent years to this valuable retirement income stream.
In cases where divorce occurs when a pension is already in payment, if a tax-free lump sum was previously taken, this will not be an option once the pension has been split. This can cause several issues, notably no access to further tax-free lump sums, but also a potential need for higher income.
An option would be to choose to flexibly access new pension benefits, however, income tax issues will affect not only the amount received, but also the level of the remaining fund value.
It is also of vital importance that a Cash Equivalent Value is not left to expire or alter in extended divorce proceedings, as all income forecasts can be rendered inaccurate or, worse still, at the point the pension benefits are required.
Another important factor will be to check the effects on each individual’s Lifetime Allowance and possible HMRC protection that may have been previously put in place as a result of the divorce and pension order.
Income may not necessarily be generated solely from pensions, other sources include investment income from a portfolio of Individual Savings Accounts, Investment Bonds or shares. They will still need to be factored into the overall situation and can be considered as part of overall post-divorce income requirements as a standalone analysis.
An Independent Financial Advisor can provide advice in areas in which a solicitor cannot, and vice-versa. The benefit of these two professionals working together for a common client outcome in this complex but crucial part of divorce proceedings cannot be underestimated.
If you would like to find out more about Michael and Strategic Solutions Financial Services, click here Michael King
Michael has been with the Strategic Solutions Chartered Financial Planners for 5 years. He began his working life in 1986 in accountancy, before moving to Financial Services in 1998.
Specialising in Wealth Management and Retirement Planning, Michael aims to understand his clients’ needs and objectives whilst providing bespoke solutions.
Michael has many very satisfied clients and works closely with other professional advisers across the South Coast, London and Home Counties.
Michael is the 10th Chartered advisor at Strategic Solutions and its 7th Chartered Fellow.