Divorce and the abolition of Lifetime Allowance

Yesterday, Jeremy Hunt’s Spring Price range included the abolition of the pension Lifetime Allowance (LTA), which is able to apply to all members of registered pension schemes following it’s introduction on sixth April 2023.

Right here, Stowe Associate, Liverpool-based Matthew Taylor, seems to be on the implications for divorce monetary settlements.

How Pension Lifetime Allowance adjustments affect Divorce

The abolition of the Lifetime Allowance (LTA) introduced within the UK’s Spring Budget, could have a drastic affect on monetary negotiations following divorce for anybody who beforehand would have been hit by the LTA on account of holding a pension fund valued at over £1.07m.

In conditions the place a pair has agreed to have a pension sharing order made in respect of such a fund following a divorce, the proportion of the fund to be shared could now must be recalculated to replicate the elevated web worth of the fund.

This may increasingly even be problematic, the place a big pension fund is to not be shared, however as an alternative the non-pension holder is to retain a larger proportion of different belongings to ‘offset’ the pension wealth retained by the holder. 

The worth of the retained pension has now dramatically elevated, given the discount in tax to be paid on receipt of funds – whether or not as earnings or lump sum – or following a crystallising occasion, resembling transferring the fund abroad or reaching age 75 with unused pension advantages. 

Failure to recalculate the worth of the fund with out accounting for the LTA may see non-pension holders lose out.

An unintended affect of the abolition of the LTA could also be to make excessive web value pension negotiations extra complicated.

Whereas beforehand, pension sharing may very well be a sexy settlement route, because it may minimise or remove tax paid as a result of LTA, that benefit now not applies, which can result in extra arguments about whether or not pensions needs to be shared or not.

Given the scope of those adjustments, it’s critical that events – notably the non-pension holding partner – take authorized and monetary recommendation earlier than finalising any settlement.

Helpful Hyperlinks

Do you break up a pension when divorcing?

Divorce & the Gender Pension Hole