Changes in Pensions and Divorce

With effect from the 6th April 2015, the Government has introduced radical changes in pensions which could have a significant impact upon couples going through the divorce process.

Now, in addition to the existing provision for a 25% tax free cash from a pension fund it may be possible to take subsequent withdrawals without limit on the amount which would then be treated by the Revenue as income in the year of withdrawal.

There are a number of potential impacts of the new pension provisions two of which are as follows:-

1. Is there a risk that after marriage breakdown but before financial provision is addressed, a spouse that has passed retirement age could, deliberately or otherwise, reduce the assets of the marriage? In short, yes. Under the new provisions, after a marriage breakdown, a spouse could “cash in” their pension which could then trigger a significant income tax liability on the 75% of the fund that does not get tax relief. That spouse might then go on to invest the balance of the fund in a scheme that fails or could simply spend the money. Where then does that leave the other spouse who would otherwise have been seeking some sort of pension provision?
2. In a case where, after marriage breakdown, there has been financial provision by way of pension sharing and ongoing spouse maintenance with a view to this being reviewed at some point in the future, if the recipient of the maintenance were to draw down on their pension fund and make unwise investments in effect rendering themselves without pension income at retirement age, how would the court treat this upon a future review of maintenance? Would the payer be required to continue paying even if that might not have been the case but for the pension draw down? Should the court dismiss maintenance and impose a full clean break?

These questions and others are becoming increasingly important and do require consideration upon marriage breakdown since the new pension provisions. If in doubt, seek proper advise which could include steps to be considered if a spouse is about to drawdown from a pension fund after marriage breakdown but before financial provision has been addressed.