Ensuring equality of pension income on divorce
Daniel has personal pension plan. He is getting divorced from Kate who has no pension arrangements of her own. They are the same age.
The Solicitors acting for both parties have agreed that there should be “equality of retirement income” when both of them reach age 65.
Unsurprisingly the split of Daniel’s pension plan needs to be more in favour of Kate. This is because at the moment annuity rates for Females tend to be lower than for Males (women on average tend to live longer than men).
The split is determined to be 43% to Daniel and 57% to Kate to determine the equality of income required. So on the surface that seems fair and reasonable.
However whilst the parties to the agreement obtained the current value of Daniel’s personal pension plan to help determine the split, what went unnoticed was that his policy contained a GAR.
What on earth is a GAR? It is another of those financial services acronyms this one standing for Guaranteed Annuity Rate.
Some personal pension plans (and some of the older Retirement Annuity Contracts) contain a guarantee that the fund value can be converted into income using a pre-determined annuity rate and one that is very likely to be much higher than the ones available in the open market.
The equality of income calculation may therefore be flawed because for every £1,000 of fund value Daniel may be getting a higher retirement income than Kate is likely to receive. Perhaps the split should have been more in favour of Kate to reflect this?
We are holding a series of short workshops for Solicitors in Guildford on Tuesday 11th October at the Mandolay Hotel, London Road.
If you are a Solicitor or Paralegal involved in this are of the law and you want to find out more about the intricacies of pension plans and how they impact upon divorce situations register to attend at www.icl-ifa.co.uk/pensions-divorce-workshop we will be delighted to see you there.