The changes in the pension drawdown rules earlier this year have been well-publicised. As from April 2015 a person aged 55 or over has the option to draw a tax free lump sum of up to 25% of the value of their pension. While this gives the person holding the pension more flexibility it can have adverse consequences for their spouse in divorce.
There is now a risk that a spouse who reaches the age of 55, prior to a final Financial Order being made, could withdraw 25% of the value of their pension in an attempt to dissipate the assets and reduce the value of their spouse’s claim. Where this might be an issue, steps can be taken to secure the pension fund. It should also be possible, where the drawdown of pension monies is only discovered after the event, to take steps to recover the value of the money. Anyone in the process of divorce, should bear in mind the possible implications of the new pension rules and discuss them with their solicitor, if they have any concerns.
The Court can make various Orders in relation to pensions on divorce. One of the now lesser used Orders, is an Earmarking Order where a portion of the pension income is paid to the ex-spouse on the retirement of the spouse holding the pension. Anyone with an Earmarking Order is in a potentially vulnerable position after the introduction of the new rules as they could find that their ex-spouse has drawn down 25% of the value of the pension fund, prior to retirement. This could considerably reduce the money available to satisfy the Earmarking Order and could leave the ex-spouse with a significantly smaller income than they had expected. Anyone with an Earmarking Order should take urgent legal advice with a view to protecting their position.