Pensions in Divorce / State Pension Update08 February 2019
Divorce is always a hugely emotional topic for all involved. It's the ending of an era for some and a new opportunity for others. I have written much on the topic in the past and my book on the journey of divorce, Addicted to Wedding Cake, was published in June 2010. The follow up book, Nagged, Tagged & Bagged: Divorce Recovery (March 2011), was a look into what might follow divorce, both good and possibly not so good.
The legal and financial aspects of a divorce need to be considered carefully as a financial settlement is sought, and this may cover assets that may not be immediately obvious or tangible, such as pensions. Whilst most divorcing couples are aware that personal and company pension benefits need to be added in to the division of assets, it is also important not to forget about the State Pension and how divorce might affect this entitlement.
Pensions sharing can be complicated and we have significant experience in applying the process in numerous cases.
The State Pension in divorce – standard/basic State Pension
One key issue that is of note and is a relatively recent change is the way that State Pension benefits can be applied in divorce. Prior to April 2016, under old State Pension rules, it was possible to swap the National Insurance record of one spouse or civil partner for that of the other for the period of the marriage in order to claim a higher basic State Pension at Stage Pension age (e.g. if one spouse did not work during the marriage and the other did).
Remarriage or entering into a civil partnership following divorce may well change this position.
For those retiring on or after 06 April 2016, entitlement to the standard State Pension will be based solely on the individual's National Insurance record and it is no longer possible to claim based on a partner's record. For reference, the maximum standard State Pension in the tax year 2018/2019 is £164.35 gross per week / £8,546 gross pa.
It is clearly important for divorcing couples now to take this change into account. What may not be so clear is that individuals who divorced before April 2016 but have not yet retired may also be affected as many divorce settlements before this point are likely to have been based on the old system. This could be a significant shock for those now entering retirement and expecting a State Pension based on their ex-spouse's National Insurance record.
Additional State Pension or Protected Payment
If your partner is entitled to the State Pension under the rules that applied prior to April 2016, they may be entitled to Additional State Pension (on top of their basic State Pension). Those who reach State Pension age on or after 06 April 2016 will receive the new State Pension and may be entitled to Protected Payment (an amount payable above the standard weekly rate).
The court can decide that this Additional State Pension or Protected Payment, as a financial asset, should be shared as part of the financial settlement.
You can check if part of a State Pension (Additional State Pension or Protected Payment) can be shared in divorce proceedings by completing a BR20 form from the DWP.
This very useful and clearly detailed form can be found here:
Check your State Pension
We would always recommend that you check your State Pension forecast to ensure that you are fully aware of what you are likely to receive at State Pension age, particularly if the State Pension is likely to form a significant proportion of your retirement income. You can do this online, by post or by calling the Future Pension Centre, and details can be found here: https://www.gov.uk/check-state-pension
There is much to consider in financial terms when coming to a divorce settlement. The team at Chapters Financial has significant experience in this area and would be pleased to help. We do not provide legal advice and this should be sought from a suitable professional. If you do not have your own contact, we would be happy to make a recommendation.
No individual advice is provided during the course of this blog.
Keith Churchouse FPFS
CFP Chartered FCSI
Chartered Financial Planner
Author of The Journey of Divorce: Addicted to Wedding Cake
Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.