I am in the process of reaching a financial settlement as part of my divorce from my husband. He has accumulated benefits under personal pension plans and a company scheme. My solicitor has advised me that I can negotiate for part of the settlement to be made from benefits secured under one of the pensions. As I am in my 50s and have no personal provision for retirement, this would seem sensible and it has been agreed that these benefits can be secured from one of my husband's personal pensions. However, I need advice on the whole procedure. Can you please enlighten me on the process of securing these benefits on my behalf?
If the settlement proceeds as you indicate, the court will issue you with a pension sharing annex under section 24B of the Matrimonial Causes Act as part of the financial settlement. Prior to issue, you and your husband will need to reach agreement as to the percentage of his pension fund that will be subject to the order.
The value of your percentage of the pension fund will then be calculated at an agreed date. Once this agreement has been reached, to protect you from fluctuations in the value of the pension fund before the order can be completed, it is usual for this amount to be expressed both as a percentage and an equivalent value. The equivalent value will be the actual amount that will be available to you to set up pension benefits in your own name.
This process differs from a settlement under a company pension plan. Assuming the company scheme benefits held by your husband are in a final-salary scheme provided by a private company, you could either be offered a guaranteed pension in your own right within the scheme, at the discretion of the scheme trustees, or by law they are required to provide you with a transfer value to take to an arrangement of your own choice.
This transfer value will be calculated as a cash equivalent of the pension that would be provided for you within the scheme. Whichever route is followed, the main benefit to you is that any pension credit received by you will not affect any Inland Revenue funding limits that may otherwise be imposed so you can make additional contributions to help improve benefits, without taking the payment into account.
It has been agreed that the plan from which your pension credit will be paid is a personal pension. It will therefore be necessary for you to set up a pension in your own name and arrange for the money to be transferred into this. You will have four months from the date on which the pension sharing order comes into place or four months from the date that the decree absolute is granted by the court, whichever is later, in which to make your own arrangements.
The pension provider will have to be provided with a copy of the decree absolute, a copy of the final pension sharing order and confirmation that there is no intention to appeal against the order. Your solicitor can provide them in order to implement the sharing order and the four-month clock will not start ticking until these items have been received by the provider.
The current pension provider will not hold any of your personal information and your solicitor will need to supply it with your name, date of birth, address and National Insurance number so that the order can be properly lodged with it.
Once this legal work has been completed, you will have four months to make your own arrangements. Thankfully, as the benefits are being paid from a personal pension plan, this should simplify the decision-making process as your benefits will also be credited to a personal pension plan.
Your main areas for consideration are likely to be selecting a specific retirement age or age range when you would like to retire, the length of time between investment of the monies and your likely retirement age, and assessing the level of risk you want to take.
This final point is likely to be the most difficult for you to assess. The balance between risk and reward can be a hard decision to reach, especially if these pension benefits are likely to be your main source of income in retirement. The key to steady long-term investment growth is diversification across different asset classes, with the balance between these asset classes governed by the level of risk or downside you are willing to take.