By Richard Hoare, head of family at law firm Andrew Jackson

Pension changes and divorce: what does the future hold?

THE much-heralded pension changes scheduled to take effect in April will provide greater flexibility for the majority of people with a personal pension fund, with the opportunity to draw down a significant level of tax free cash (up to 25 per cent of the fund) an obvious example of the potential benefits available.

The pension changes are intended to benefit pension fund holders as a whole, but might be of particular interest to those who are going through divorce, especially if they are approaching or have passed the age of 55 (the age at which tax free cash will be available). Very often in divorce, liquid capital is at a premium. Couples often find that their assets are tied up in the farm and pensions. Buying out a former spouse, or paying capital to achieve a clean break, has often been a genuine obstacle to settlement for many divorcees, particularly since raising funds through a re-mortgage has become rather more difficult.

But after April, cash from a pension fund can potentially be made available to assist in meeting payments of this kind. This should go a long way towards making it much easier for couples to reach an amicable settlement at the time of divorce. It is also likely to mean that achieving a clean break will be a more realistic prospect for many more couples.

Already, a High Court Judge has analysed the effect of the impending pension changes on the over-55s as creating for many access to, in effect, another savings account.

Although this ignores the fact that tax is payable on 75 per cent of the fund, it still gives a pretty clear indication of the approach that divorcing couples might well find the courts taking in relation to pension funds.

At the moment, the courts view pensions as a resource available to be divided, but for many this is based on an assessment of future benefits, post-retirement, rather than funds that might be available much sooner. It might be more difficult to secure a division of pensions based on an approach that provides both parties to a divorce with the same income in retirement, unless one party has a clear need for this. It might be more likely that pensions will be divided by reference to the fund values of the pensions available.

It remains to be seen exactly what the impact of the proposed changes will be on society as a whole and, in particular, divorcing couples. But there is no doubt that the changes will see the courts taking advantage of the greater options available to pension fund holders in helping them find ways to fund their divorce settlements.