Your essential guide to pensions and divorce – Part 1: before the decree absolute

Many of you will know BlueSKY from the work that we do for your clients – either in the preparation of pension sharing reports or acting as shadow experts.

As a Pensions on Divorce Expert (PODE), BlueSKY are unique in the sense that we are, first and foremost, Chartered Financial Planners who produce pension sharing reports (and have done so for more than 20 years).

Many other firms that produce pension sharing reports are typically actuaries who specialise in producing the reports and answering any questions that arise. At the point the report is completed, the relationship with an actuary typically ends.

However, as many of you are aware, BlueSKY offer a full financial planning service. This means that we can potentially assist your client before divorce proceedings start, right through to the point of the divorce being finalised and any related issues being resolved – including (and most commonly) in assisting with pension sharing implementation.

We can provide real help and value here. Of course, if we assist your client with financial planning issues then we would not be able to produce the pension sharing report as we would be conflicted.

Over the course of the next three months, we will be looking specifically at:

  • Part 1: Pension sharing implementation
  • Part 2: How working with a Chartered Financial Planning firm can be of great benefit for your clients
  • Part 3: The main pitfalls to be aware of along the way when implementing a pension share.

In this first article, read about the period up to arranging the decree absolute and obtaining the pension sharing annexes.

Sign up for our BlueSKY webinars

Many of you will be aware that we are currently running a series of webinars on pension sharing matters.

Should you wish to sign up for these and haven’t received our invitation please let us know and we can add you to our list. Alternatively, we can send you a link to the recording of the webinars.

Forthcoming webinars include:

This article is not intended to repeat the content of those sessions. Instead, we will skim through some of the considerations that need to be made up until the point that the decree absolute has been granted.

A pension sharing report invariably results in a movement of funds from one party to the other

First and foremost, we’ve assumed for the purpose of this article that your clients have agreed that a pension sharing report is necessary, and that the report has concluded that some form of movement of funds is required from one party to the other.

The pension sharing report that your clients would have obtained will have crunched the numbers and identified what pensions will need to be shared and what proportions of each scheme will need to be moved.

At this point it is important to note that the pension sharing report is not prescriptive and that the report is intended to answer the questions posed in the letter of instruction. It is not uncommon to come across cases where the pension sharing award, while mathematically correct, may not necessarily be the most practical solution for a couple.

An example of this could be where defined benefit and defined contribution pensions are involved. While sharing the defined benefit pension may seem the best way to approach pension sharing, the lack of flexibility may cause problems if only internal membership is available.

We have dealt with cases in the past where – for example, because of housing needs – additional flexibility has been desirable to enable one party to withdraw tax-free cash and meet their housing needs.

This is one example of the benefits of engaging with a financial planner once the pension sharing report has been prepared. We can help to determine whether the solution presented in the pension sharing report can work in practical terms or whether some renegotiation may be required.

Drawing up a pension sharing annex

Once the pension sharing report has been agreed and the parties intend to split their pensions in line with the report then it will be necessary to draw up a pension sharing annex for each pension to be shared.

The pension sharing annex is a relatively straightforward document. The reports that BlueSKY prepare state the necessary information required for completion of this document. It is a common misgiving that all sections of the pension sharing annex need to be completed before things can move on.

The most common misconception is that section G on the pension sharing annex needs to be completed – this provides details of the new pension scheme assuming an external transfer is being taken.

It is not necessary to state the name of the new pension scheme that will accept the pension credit and in most cases this information will not be known until much later. Therefore, section G can simply be ignored and “to be confirmed” written in the relevant boxes. Clearly an internal transfer does not pose such an issue.

Once the pension sharing annex has been stamped, then both parties can move on to decree absolute. Bear in mind that there needs to be a 28-day period between completion of the pension sharing annex and getting to decree absolute.

Once the decree absolute has been granted then, theoretically, along with the pension sharing annex, your clients are in a position to implement the pension sharing award and any new provider will require copies of the court-stamped documents.

Encourage a client to seek assistance straight away

Another misconception is that it is better to wait for the decree absolute to come through before a client seeks financial advice. Assuming that both parties are in agreement with the pension sharing proposed by the pension sharing report, we would encourage a client to seek assistance straight away.

Seeing a financial adviser early in the process means that a new pension scheme can be identified before the decree absolute has been granted. Getting together with a financial planner can also help to identify whether any extraneous actions need to be taken – for example, potentially drawing down on the pension to assist with the purchase of a new property.

Therefore, when the decree absolute comes through, your clients would have saved valuable time by getting a contract in place and ready to go.

5 key points from this article

The key takeaway is to impress upon you that working with a financial planner can really help to speed the process along. It can also identify any potential banana skins that might appear, and which could cause significant delays in implementing a pension sharing award.

Summary of some of the key points:

  • Section G of the pension sharing annex does not have to have a recipient pension.
  • There must be 28 days between the pension sharing annex and decree absolute.
  • Encourage your clients to seek financial planning advice as early as possible (preferably before decree absolute).
  • Resolution accredited advisers have taken the time to understand the divorce process and to appreciate the needs, fears and anxieties that the divorcee may have. There are several such advisers in the country – including us!
  • Look out for the BlueSKY webinars here (the subject matters were requested by solicitors).

Next time, we will cover life after the decree absolute, and what happens next.

Get in touch

If you have clients that would benefit from our help, or if you’re interested in working more closely with BlueSKY, please get in touch. Email or call us on 0118 987 6655.