Posted by Jemma Breban on 20th March 2015

pension reform the family law co exeter plymouth solicitorsThis Blog is important for those considering divorce who have incomplete state pension contributions records or whose spouses have significant Additional State Pension (‘ASP’) funds.

The proposed state pension reforms due to take effect after April 2017 will affect millions of people, many of whom will be worse off under the new scheme. Few people have paid any interest to these changes.

The common perception is that the state pension is likely to be worth very little in the future and there is very little that we can do to influence it.

However, with the changes coming in, and the assumptions around retirement that are used in divorce, the reforms could substantially affect primarily women as the home maker in their retirement. Single/divorced women already count for the majority of pensioners who live below the bread line.

Under the new scheme, a full state pension entitlement would be worth about £144 (in today’s money). State pensions grow each year by inflation (they are legally linked to inflation measures) and are paid for life from state pension age (65/66/67) until death. Taking today’s average life expectancy would require a cash fund of £150,000 – £250,000 to purchase the equivalent pension to provide this level of income for one person.

State pension proposals

The Department for Work & Pensions have issued a documented proposal, “The single-tier pension: a simple foundation for saving”, which sets out the detail of the reforms. At 108 pages, it is complex and certainly belies its title. To save you reading this, below are some of the highlights:

Divorce and State Pension

What are the implications of the reforms on those going through a divorce?

Pension Substitution.

Presently on divorce, if one party (typically a wife who has looked after the children) does not have a full National Insurance contribution record they may apply to substitute the National Insurance record of their former spouse for their own record in relation to all tax years during their working life. They can do this for the period up to the end of the tax year in which the marriage ended or the end of the tax year before they reach State Pension Age (SPA), whichever comes first. This needs to be claimed rather than being granted automatically. This is standard advice given on grant of the final decree in all divorce cases.

In addition, the former spouse’s Additional State Pension (ASP or formerly SERPS) record can be taken into account as a financial asset on divorce and shared by court order.

BEWARE: Post Reform.

What now for pension sharing orders?

So what does this mean for those considering divorce now or in the future?

Difficult decisions may have to be made sooner than might otherwise have been the case.

Warning signs for those who believe they may be affected:

It might be argued that the solution is to act sooner rather than later, if it makes the difference between being able to take advantage of the present system of sharing and adjustment of state pension rights rather than risk the uncertainties of the forthcoming changes.

Pensions are complicated and more so on divorce. It is essential that you get expert legal advice. We here at the Family Law Co advise upon pensions, day in, day out so, if you are in any doubt about your position please do not hesitate to contact our divorce solicitors Plymouth or our legal experts in Exeter.

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