In uncertain time such as these many people who are going through divorces are wondering whether now is the time to be agreeing a pension sharing order. Much depends upon the type of schemes they have. In this article, Family Partner, Rebecca Silcock discusses the different types of schemes and the implications for both parties.
Money Purchase Plans
If you are considering using pension assets to offset other non-investment assets, such as property, then following the stock market fall, the value of the pension assets would have fallen, whereas the non-investment assets may have stayed the same. This could mean that the offsetting asset split has now changed and should be reviewed.
If assets are being split equally via pension sharing, then the fall in value will impact equally on both parties. You could argue that the spouse receiving the pension sharing would have adopted a lower level of risk and therefore would not have lost as much, but this may be difficult to argue.
Defined Benefit (Final Salary) Plans
The same principles apply with Defined Benefit plans as these plans can also be used for offsetting or sharing.
The difference here is that we would not expect to see as dramatic a fall in the pension value compared to the fall in stock markets. Final Salary pensions are linked to salary and length of service and agreed revaluation rates. Although the overall pension plan will have underlying investments, there is no individual investment pot. The pension value is linked to the value of the accrued pension and an actuarial calculation using long term gilts. We have seen little change in the gilt rates so as such we would expect the pension value to have held up relatively well. As such, obtaining a revised value may show little change.
If you are receiving a transfer from a Defined Benefit Scheme, as there is no option to become a shadow member, then transferring now is more advantageous, as the transfer funds will be invested in a market that has fallen considerably over the past 10 weeks. If you can become a shadow member then this could appear to be even more of a favourable position, as this would remove any investment risks.
If offsetting, then we would not expect the value to have fallen by as much as the Money Purchase plans, however, getting an updated value may still be advisable.
If in any doubt as to what type of scheme you have or how you may be affected please email either Sean McCabe firstname.lastname@example.org or Rebecca Silcock email@example.com or call on 01225 750 000