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Take the credit

My solicitor has told me that the court has made an order for me to share half my husband&#39s pension. What do I need to do now?

Your share in your husband&#39s pension is known as a pension credit. This has been confirmed to me at £120,000. Your husband belongs to a final-salary contracted-out pension scheme, which means there are several complications involved with your pension share.

I am sure you have heard of the pension misselling scandal, whereby many thousands of people were wrongly advised to move their pension benefits from one type of scheme to another. The situation you now find yourself in raises those same issues.

You have a pension credit worth £120,000 and have to decide whether to leave it where it is, transfer it into your own employer&#39s pension or into one of two different types of individual arrangement. This decision process is extremely complicated and fraught with many dangers. It could cost you dearly if the wrong decision is made.

Due to your age, you do not have the option to take benefits today.

Fortunately, your decision has been made easier because your ex-husband&#39s pension scheme has stated that you must transfer your pension credit out of that scheme. This is a legitimate decision it is allowed to make. If it had not taken that decision, then we would have had to include in the decision process the option of leaving your pension credit in your ex-husband&#39s scheme and comparing the benefits it would provide for you as a separate new member.

As you are not working, we also do not have to consider your own employer&#39s pension scheme. Again, if you had been in a company scheme of any type, we would have needed to look at the advantages and disadvantages of moving your pension credit to that scheme. As you can see, as neither the option to remain in the old scheme or transfer to a current employer&#39s scheme is open to you, your decision process is made considerably simpler.

You are currently aged 45, so, while the option to take pension benefit immediately is not available, this may change when you reach 50. You have told me that would like to have access to income at a relatively early age and this is an important factor to take into account when we consider which of the two types of individual arrangement you should transfer into.

Your ex-husband&#39s pension scheme was contracted out of the state earnings-related pension scheme. Your share of £120,000 carries with it considerable baggage concerning this issue. One of the routes open to you is to retain the guarantees by transferring to what is known as a section 32 buyout bond. This is an individual arrangement which uses occupational pension law but has the ability to retain the contracted-out guaranteed minimum pension within it.

The insurance company that you use for your section 32 buyout bond will promise to pay you a pension relative to the future value of your fund, subject to meeting the guaranteed minimum pension. One problem with taking this route is that you will not be able to obtain the guarantees until state retirement age. Also, the size of the guarantees will determine how much of the fund is required to meet the guarantees and could effect your share of your ex-husband&#39s tax-free cash calculation.

The alternative route is to utilise a personal pension. This is probably the simplest option. You have £120,000 as a pension credit which will be moved into a personal pension fund in your own name. Unfortunately, it is not that easy because now the amount of your pension credit which relates to the guaranteed minimum pension becomes known as protected rights. You are not allowed to touch this part of the fund until state retirement age. However, the remainder of the money is available to you from age 50 onwards and, in your particular circumstances, a quarter of the remaining money would be available as tax-free cash. The remainder of the non-protected rights money would also then be used to provide you with an income.

Thankfully, the decision in your own case will be relatively simple as you would like to have access to the money sooner rather than later and, when I look at the background to your pension credit, the guaranteed rights under your ex-husband&#39s pension scheme are particularly small.

It is my recommendation, therefore, that we transfer your pension credit to a personal pension in your own name with a leading insurer. Having made that decision, all we now have to consider is which insurance company to use and where we should invest the money.

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