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Divorce and Family Law May 21st, 2013

Single tier state pension – a simpler system?

It is common knowledge that we have an ageing society, and generally agreed that many people have made insufficient provision for their retirement. Our guest blogger Hannah Foxley wrote here on the risks of sacrificing pension provision on divorce in order to retain the marital home.

The current Basic State Pension requires 30 years of National Insurance payments, or credits which are available for other contributions such as raising children. The alterations in the draft Pensions Bill include the following provisions:-

• Plans to implement a single-tier state pension which will, for future pensioners, replace the current basic State Pension and additional State Pension with a flat-rate pension that is set above the basic level of means-tested support. This is £144 per week in today’s terms.

• Bringing forward the increase in the State Pension age to 67, meaning that the state pension age will gradually rise between 2026 and 2028. State pension age will reach 66 by 2020.

• Provision for a regular review of the Stage Pension age to rise in line with life expectancy.

To receive the maximum State Pension in future, you will need to have 35 years of contributions. For many women this can be difficult, particularly where they have given up work to support their husbands. The current arrangements allow a person to substitute their National Insurance record for the record of their former partner on divorce without any penalty to the other spouse, something which is going to come to an end under the new Bill. This entitlement is to be withdrawn for anyone who reaches State Pension age after 5 April 2016. This applies regardless of the date of the divorce, which may leave some spouses in an unexpected and difficult financial position if they had anticipated that they would be entitled to substitute their former spouses National Insurance record for their own on retirement.

It will therefore now become even more important to ensure that all pensions, including the state pension, are properly considered on divorce. Here at BLB we always advise our clients of the importance of full financial disclosure. Unfortunately a recent survey by the Phoenix Group revealed some shocking statistics for the female divorcee. The survey, reported on Family Law Week, found that 66% of divorced women were going to be reliant on the State Pension after divorce; that after getting divorced 19% of women stopped paying into a pension altogether and that one in five were not aware of their pension provision at all. The message is clear, make sure you understand the financial implications of your divorce, seeking expert advice where necessary.

 

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Jo Morris
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