Divorce and the abolition of Lifetime Allowance

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

Right here, Stowe Accomplice, Liverpool-based Matthew Taylor, appears on the implications for divorce monetary settlements.

Table of Contents

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 resulting from 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 internet worth of the fund.

This will 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 better 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 revenue 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 might see non-pension holders lose out.

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

Whereas beforehand, pension sharing could possibly be a beautiful settlement route, because it might minimise or remove tax paid because of the LTA, that benefit 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 vital that events – significantly the non-pension holding partner – take authorized and monetary recommendation earlier than finalising any settlement.