Old Mutual Wealth has highlighted a potential, unintended consequence of the recent changes to Pension rules. Around 20 years ago Pension Earmarking was introduced into our divorce laws. This gave the courts the power to order that a divorcee would receive a fixed percentage share of their ex spouse’s pension income.
The power to make these orders still exists but such orders are not often made as Pension Sharing orders are generally preferred . Stated simply, the income from a pension earmarking order dies with the pension holder whereas, after a Pension Sharing Order has been made, the recipient of the order has funds transferred into a fund in their own name and that fund, and the benefits derived from it, survives the death of the original pension holder.
So what risk do the new pension rules pose for people with Earmarking orders made in their favour? Well, as Old Mutual Wealth have pointed out, the pension holder , applying the new rules, may opt to withdraw their pension, or part of it, as a lump sum leaving the fund unable to comply with the order to provide an income for the ex spouse.
Anyone who has the benefit of a Pension Earmarking order, whether or not payment from the pension is already being received, should take legal advice to ascertain whether or not their income is protected in the event that their ex decides to withdraw some or all of the fund as capital.