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State pensions and divorce: An update

11th February 2016 - Kathryn Mason
State pensions and divorce: An update

Over the course of the last few years a number of changes have been made to the law on pensions. This week, the Department of Work and Pensions published new information regarding the new arrangements for State Pensions sharing which will be introduced on 6 April 2016.

The report is aimed at legal and financial advisors, as well as the Court.

State pensions and divorce: the current law

For couples who have reached, or will reach, state pension age before 6 April 2016, the law remains unchanged. Couples will be able to use the National Insurance contribution record of the estranged spouse to help increase the basic State Pension following divorce. The ex-spouses pension will not be affected. If you remarry before State Pension age, the right to do this will be lost. An additional state pension (commonly a state second pension or a graduated state pension) will be considered as a financial asset in the divorce proceedings and may be subject to a pension sharing order.

The new law

The new law means that the value of the new State Pension will be set above the level of the basic weekly means test, with the intention that people should build up the pension in their own right as a foundation for private pension sharing. This is consistent with the drive to encourage people to save as soon as they enter the work place with the introduction of automatic enrolment where employers are legally obliged to offer employees a private pension scheme, unless the employee opts out.

Importantly, for those future pensioners falling into the new rules post 6 April 2016, it will not be possible for spouses or civil partners to get a pension sharing order against the National Insurance contributions.

The new law also introduces a new protected payment for people transitioning into the new scheme. The protected payment will be made up of the excess amount of pension over the basic level of state pension (£155.65) and will continue to increase with the CPI rate of inflation each year until retirement. For couples divorcing on or after 6 April 2016, only the amount of the Protected Payment element of the State Pension asset can be subject to a pension sharing order in proceedings.

This is a very brief summary of the new law. The report goes into more detail, which can be read in full here. Pensions can be a complicated financial asset. It is recommended that legal advice is taken.

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