In its response to the Deregulatory Review the Government has sought views on proposals to reduce the cap on revaluation of deferred benefits for pension rights accrued on or after a future date from 5% to 2.5%.
“This move goes against the recommendations of the review” said Brian Spence, director of pensions on divorce specialists Spence & Partners “and is clearly designed to see if it can reduce the entrenched trend of final salary schemes closing.”
Divorcing couples are often under the impression that a 50% pensions sharing order means that each partner will get an equal share of pensions built up before the divorce in a final salary scheme but in reality the scheme member’s pension will continue to grow with salary increases each year whereas the pension given to his or her spouse will only be increased in line with retail prices. “If inflation rises above 5% a year, it is difficult to see the justification for limiting the increases to the spouse’s pension to 5% a year as at present but to limit the increases to 2.5% a year when the spouse might be enjoying increases at a much higher rate seems grossly unfair” Mr. Spence continued “and this is surely an entirely unintended consequence of the Government’s wish to ease the burden on employers.”
The Government also sets out an outline of its intention to simplify the treatment of benefits awarded after a divorce and this is welcomed by Spence & Partners.
“Pension sharing orders are only made in about 1 in 13 divorces in England and Wales” said Mr. Spence, “it is an option for dividing property pensions sharing that is not as popular as it should be and this can be because the member being granted pension rights is much more restricted in terms of various options including early retirement compared with the spouse. Anything that makes pensions sharing accessible to more divorcing couples is to be welcomed.”
NOTE TO EDITORS
Spence & Partners are consulting actuaries whose activities encompass a specialist pensions on divorce practice advising divorcing couples on how to allow for pension rights on divorce.
For further information please contact Brian Spence 020 7556 1075or 07802 403013
Issued on behalf of Spence & Partners by Blueprint Media tel 0141 353 1515