To have and to hold

2 February 2012

My wife and myself are divorcing. I am 61, retired and in receipt of my pension. My wife is 52 and has no pension. We cannot share my pension because my income would immediately reduce but my wife would receive no income until she is 60. I intend to make maintenance payments until she is 60 and look again at pension-sharing at that time. What insurance options are available until then?

There is no provision in the legislation for deferring a pension- sharing order. An application can be made to the court later but the outcome of that application will be dependent on circumstances at that time.

As no promise can be made that the pension-sharing order will be successful later, we need to look at securing your wife’s income for the rest of her life.

Regardless of your best intentions, the only option that provides total protection to your wife is a whole of life policy. This will pay a lump sum on your death to your wife. It is the only type of policy that will guarantee to pay out on your death, regardless of your age. Costs could be around £350 a month.

The next option is to look at the liklihood that you will be able to secure a pension-sharing order in eight years.

It is possible to take out an insurance policy that would pay a continuation of income to your wife for a fixed period if you die. No one provides for this sort of cover throughout life and different companies have different maximum ages.

If we think short term, to put in place a policy to cover the maintenance payments if you die before your wife is 60, the monthly premium would be about £30.
An alternative would be to identify the capitalised value of the future maintenance payments and insure that amount. There are standard tables accepted by the courts to assess the value of the payments.

If we did this again for a policy that ceases on your wife’s 60th birthday, the cost would be about £90 a month.

Neither of these options provide protection for your wife after she is 60.

The third choice is a combination of the whole of life policy and the short-term policy.

Here, we look to identify the capitalised amount for the maintenance payments and insure that amount on a temporary policy to your wife’s 60th birthday but build into it, at a cost, the ability at that time to change the arrangement into a whole of life policy.

We have here the combination of lower premiums in the early years, then, regardless of your health, cover throughout your life if subsequent court orders should not be available.

The cost in the interim for this type of arrangement is around £140 a month but will increase substantially later.

Given your current circumstances, there is no reason to suggest that an application for a pension- sharing order to the court should be unsuccessful in the future but it must be stressed it is up to the court at the time and individual circumstances.

My own preference, understanding that it starts off cheaper but could end up with substantially higher costs, is to use the last option with the cheap convertible-term insurance.

The above quotations assume my remuneration is via commission. If a policy was put in place on nil commission with you paying for my services by a fee, the cost of the convertible term policy would fall to around £110 a month.

Richard Jacobs is managing director of Richard Jacobs Pension and Trustee Services

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