While I suggested in my previous blog that the choice of pension provider, when you are planning around separation or divorce, is less crucial from an investment perspective than the asset choices you make, it can, in some cases, be significant. If you are likely to begin taking money out of the pension within in a few years, then you will probably want to hold your funds in a pension structure that gives you all the flexible retirement options that have recently been introduced, allowing you to choose how to draw out your funds. This flexibility may be particularly important for divorcees as you start a new chapter in your life, and are perhaps not entirely sure what that life will look like, and therefore, when you might need money from your pensions.
Where the pension share is to come from a ‘defined-benefit’ (or ‘final-salary’ in the old language) pension scheme, you may have valuable choices. You may be offered the opportunity to become a member of your ex-spouse’s pension scheme on a defined-benefit basis, i.e. you get the promise of a pension income from a certain age for the rest of your life. A promised income for life can be hugely attractive, particularly where the company which sits behind the pension scheme is financially strong and can support the pension scheme, freeing you to a very large extent from concerns about stockmarket gyrations.
However, where there is a choice, some clients don’t take the defined-benefit option, as the defined-benefit pension is only available from a certain age, typically 65, and while access might be allowed before age 65, it is usually subject to swingeing penalties. Therefore, the 54 year old who does not want to return to work, but has sufficient funds to retire, may choose, if they have the option, to transfer the share to a personal pension so that they have access, and flexible access at that, from age 55, accepting that by transferring, they also transfer all the investment risk to themselves. So again, the financial planner needs to discuss what you might need and when, and help you understand the options and trade-offs you may have.
As noted in this series 9blogs 1, 2 & 3], we call ourselves financial planners for a reason, as one of the biggest parts of our job, and often the part that brings the most value to a client, is the planning rather than the selection of this or that investment or pension. Hopefully the points above and in the previous blogs have given you a flavour as to how we can help in separation and divorce situations.
Richard Wadsworth is a Chartered Financial Planner at Carbon. Contact Richard via email on firstname.lastname@example.org or get in touch with your local office.
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