Fundamental changes to pensions will make it much easier to split pension assets in divorce proceedings, according to leading law firm Ward Hadaway.
The Government announced radical revisions to pensions earlier this year. Under the new rules, all restrictions on access to pensions will be removed from April 2015.
The changes affect anyone saving into a personal or workplace pension scheme where the payouts are based on performance of the fund rather than final salary.
Instead of having to buy an annuity at retirement, pension holders aged 55 and above will be able to take the whole of their pension pot as a cash lump sum. As a result, Ward Hadaway believes that pensions are likely to form an increasingly vital part of divorce negotiations.
Jonathan Flower, partner and head of the family law team at Ward Hadaway, said: “Until now, splitting pension arrangements in divorce proceedings has been a complicated task. This has made pension sharing orders and similar arrangements less common, with spouses often trading off other assets rather than going to the effort and expense of sharing a pension pot.
“However, the changes to pensions law due to come into effect in April 2015 mean retirees will be able to do as they please with their pension pot from the age of 55, with the exception of final salary or career average pensions.
“The changes mean pension assets will be much more easily split in divorce proceedings, if viewed as cash sums available from the age of 55. As a result, we may see many more divorce cases where the pension pots of either or both partners take centre stage in the proceedings.”
According to the Association of British Insurers, the average pension pot at retirement is £36,800. But many people have pension savings far in excess of this figure.
While the freeing up of pension pots does not prevent people from buying lifetime annuities or other investments with their money, it does mean there will be fewer complicating factors when it comes to assessing the value of a pension in a divorce case.
Mr Flower said: “A pension is likely to be the second most valuable asset in any marriage after the family home, and may even be the largest, taking into account any debt secured on the home. As divorces often happen in periods of financial stress, the pension asset may be all the more valuable.”