In terms of rebuilding a pension post-divorce, clients' future pension savings will generally be subject to the standard annual allowance rules, where the maximum amount of pension savings each year with the benefit of tax relief stands at £40,000.
Mr Cayless warns: “Care should be taken by a member of a defined contribution scheme not to trigger the reduced money purchase annual allowance of £4,000 – rather than £40,000 – by cashing in pensions to release additional liquidity for the divorce ‘pot’.”
The lifetime allowance, the limit on the amount of money that can be saved in a pension without triggering a tax charge, as announced in the Budget 2018, increased to £1.055m, from £1.030m, for the 2019 to 2020 tax year.
Mr Cayless continues: “In terms of the lifetime allowance, losing pension scheme benefits through pension sharing can result in the loss of valuable tax protections where an individual’s pension benefits exceeding the allowance, such as fixed protection, individual protection and primary protection.
“Individuals with fixed protection in respect of the lifetime allowance should be aware that if they receive a pension credit as a result of a pension sharing order after the effective date of the fixed protection, they may lose their fixed protection as a result.”
He adds: “Whether or not an individual with one of the LTA tax protections can rebuild their pension rights after they have been reduced due to a pension debit depends on the type of the individual’s arrangements and on whether they have lost that tax protection as a result.
“Care should be taken to ensure that the reduced money purchase annual allowance is not inadvertently triggered where an individual wishes to make future pension savings in excess of £4,000 a year.”
Other issues
Many women fall into debt because they simply do not have the savings or financial resilience to manage life’s income and expenditure shocks, so women can be particularly vulnerable if they face situations like job loss, divorce or large unexpected household bills.
Mr Neale says that apart from the need to pay very close attention to the legal requirements, there are a few particular issues which often arise.
"Under pension sharing, the party whose pension is the subject of the pension sharing order has a 'pension debit', and the other party a corresponding 'pension credit'," he says.
"To the latter party, the trustees may offer an 'internal transfer': technically, this is a discharge of the pension credit by creating appropriate rights in the same pension arrangement."
More commonly, however, he says the trustees will offer only an 'external transfer' - discharge of the pension credit by paying a transfer value to another pension arrangement.
