Pension sharing on divorce and annuities: experts' review

When new pension freedom rules were introduced in April 2015 there was much speculation in the financial press and media that pensions could simply be treated as bank accounts. Whilst this has proved to be an oversimplification in terms of the products available and the tax consequences of large withdrawals there are some circumstances where the capital value may be more relevant than the potential pension income.

For example a 50/50 split of the capital value of pensions may now be appropriate in large divorce cases where both (a) there are only money purchase pensions (defined contributions) to consider; and (b) neither party needs to use their pension funds as their main source of lifelong income.

It may be of interest that the younger party would usually need less than 50% of the capital value to achieve parity of income where all of: (i) there are only money purchase pensions; (ii) unisex assumptions are made; and (iii) the parties retire at the same age so the younger party has a longer period during which to invest prior to retirement. This assumes that both parties are in good health.

A common misconception...

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