Following the presentation of the chancellor’s Spring Budget last month, we consider what impact the abolition of the pension lifetime allowance (LTA) will have on divorcing parties.
The LTA caps the total amount a person can save in a pension – currently £1,073,100 – without incurring an additional tax charge. The abolition of this cap means that there will be no longer be additional tax charge for pension funds which exceed this allowance; a move which the chancellor hopes will encourage people to stay in work longer.
For Family lawyers, the impact of this is twofold:
- Often pension assets are one of the largest assets to be taken into consideration when negotiating a settlement for divorcing parties. The lifting of the LTA is likely to mean parties will continue to make contributions into their pension funds to take advantage of the lifting of the LTA, meaning pension funds will increase further in value and require careful consideration and actuarial input.
- In circumstances where the couple has already negotiated a pension sharing order in respect of this type of fund, but it has not yet been implemented, it may be that the percentage to be shared now needs to be recalculated to allow for the increased value of the fund. Further, in situations where one party has agreed an “offset” (meaning they have retained the majority of other matrimonial assets to buy off their interest in the other parties’ pension), it is likely the fund retained will increase in value. In these situations, a recalculation of the fund value will need to take place to ensure the non-pension holder does not lose out.
Finances can be a tricky area for separating couples and it is essential to seek specialist legal advice when considering finances within a divorce, particularly the division of pension assets. For more information about divorce proceedings and the resolution of the matrimonial finances, our Family team are here to help. Please visit our website for more information or contact us by telephone on 0191 384 2441.
This article is for general information only. It does not, and is not intended to, constitute legal or professional advice. The law may have changed since this article was published and we would always recommend that you seek specific advice on any particular legal issue.
