From 6 April 2016 a new regime will operate in England in relation to State Pensions. It will impact on the treatment of state pensions – particularly additional state pensions – in the context of divorce.
The current scheme
When dealing with financial issues on divorce the existence of any additional state pension needs to be disclosed. A valuation should be sought from DWP and the entitlement can be shared on divorce. The sharing is expressed as a percentage of the CEV (Cash Equivalent Value) that the DWP assign to the entitlement.
In the tax year 2015/16 basic state pension is £115.95 per week. The Additional State Pension is paid as a top up to this weekly amount.
If, as an example, an order is made that 100% of the Additional State Pension should be shared then it would have the effect of reducing the total state pension payment of the transferor down to the basic £115.95 per week. Conversely, the transferee would receive an absolute entitlement to the additional state pension element, which during the 15/16 tax year can be as high as £160 per week.
The new scheme
The main difference in the new scheme arises from the “re-basing” of the basic state pension. The new state pension in the 2016/17 tax year will be £155.65. This comprises the old state pension amount (for 2016/17 £119.30), with a £36 top up taken from what was previously the additional state pension entitlement.
The effect of this on divorce is significant. In divorces that commence after 6 April 2016, £36 per week of what was previously a shareable pension asset will fall within the new state pension and no longer be shareable.
The surplus of pension entitlement above £155.65 can still be shared. It will no longer be referred to as Additional State Pension but will instead be called the Protected Payment.
A Pension Sharing Order can still be made against that entitlement, albeit for divorces started after 6 April 2016 the entitlement will be less. The sharing will be expressed as a percentage of the weekly payment rather than the CEV.
The question of which side of 6 April 2016 a divorce commences can make a difference of £1,800 gross pension income per year. Over the course of one’s retirement the total amount this difference makes can be significant.
If you are considering a divorce and either you or your spouse have additional state pension entitlements you should seek legal advice from experts on pensions on divorce as to whether it would be sensible to consider petitioning prior to 6 April 2016 or after that date.
Andrew Barton is a partner in the family team in Exeter and a Resolution Accredited Specialist in complicated financial matters arising from divorce. He regularly advises clients in relation to pre-nuptial agreements, as well as divorce and financial matters. If you would like to contact Andrew, then please call 01392 210700 or email firstname.lastname@example.org.