Pension reforms loophole: Ex-wives may lose out in rule change over shared pot -By Dan Hyde

New rules allowing people to withdraw entire pension funds create loophole that can override agreements to share benefits built up by breadwinner

Until last month’s pension reforms most savers were obliged to turn their funds into a regular retirement income by buying an annuity .

Divorced savers who have agreed to split a pension pot with an estranged spouse in retirement can now keep the entirety by cashing it in under new rules, it has emerged.

Many couples who divorced before the millennium signed agreements to share the income benefits built up by the main breadwinner.

But new rules allowing people to withdraw their entire funds from the age of 55 have created a loophole that can override these so-called “earmarking orders”.

Experts said a large number of women relying on regular payments may be left with nothing in old age as a result.

Jon Greer, a pensions expert at Old Mutual Wealth, said: “The majority of these orders would have been for the benefit of the ex-wife, and an unintended consequence of the pension reforms is that any divorcees with such an arrangement may need to act fast to protect their benefits.”

Until last month’s radical pension reforms, most savers were obliged to turn their funds into a regular retirement income by buying an annuity.
Earmarking orders were designed to ensure a fair deal if one spouse had built up a bigger pension than the other during married life.
But after years of rip-offs in which customers were routinely given poor annuity deals, George Osborne, the Chancellor, re-wrote the rules so people could take their funds as cash lump sums.
Pension companies say that most people are using the new freedoms to treat their retirement funds more like cash machines, withdrawing small amounts as they need.

^{Savers now have more flexibility with their pension choices (HOWARD McWILLIAM)}
Figures published by Fidelity, a major provider, showed that in the first six weeks following the introduction of the rules just six per cent of customers had decided to cash in their entire pots.
However, the experts warned that depriving an ex-spouse of a share of retirement income could make full withdrawals popular among bitter divorcees.
Debbie Kay, of Thomas Miller Wealth Management, said: “When earmarking orders were drawn up, over 20 years ago, it was not envisaged that the pension could be taken this way.”
She advised those affected to check their arrangements urgently, as much depends on the precise wording of the divorce settlements.


She suggested that divorcees find out if the earmarking applies to a “capital sum” as well as a pension income. In some cases it is possible to make amendments, but only before the fund is emptied.
“Divorces after long marriages present an abundance of complexity when having to unravel the financial structures people are in,” she added.
“With all the new pensions legislation introduced in April the issues of pensions and divorce have got significantly more complicated than ever before.”

Culled from Telegraph