Don’t forget your State Pension Benefits when getting divorced

When you are going through a divorce and considering your financial settlement then you should not forget the benefits available under the State pension scheme.

This might seem to be the least of your worries, but with a current value of £97.65 per week (2010/2011) without any additions (that’s just over £5,000 per annum gross to you and me!), it could have high value in your dotage.

Considering that most of us will make to around our mid eighties, this means that we could get this benefit for around twenty years. We also have to take into account the news from the Comprehensive Spending Review that all State Pension benefits from 2020 will only be available from age 66, rather than 65.

This is the same if you have not been working during the course of the marriage, as you will see.

Let’s look at the issues.

1. Basic State Pension…..and possible additions?

You may not know that there are usually two types of state pension that may be accrued, namely the Basic State Pension and the State Earnings Related Pension) (SERPS) or Second State Pension) (S2P) as it is now called.

This may be particularly relevant if the divorce happens close to the end of a working life, as many over 50’s are finding.

Most people are entitled to some form of state pension at any age from 60 for women and from 65 for men. This age is rising to age 66 from 2016 for men. The minimum age for the state pension is equalising for all to age 65, and then this is likely to increase further to 67 or 68 in future years.

Have you ever found out what your benefit is worth? The benefits available can be checked by completing a BR19 State Pension Forecast form, which will tell you what you are entitled to, both now and in the future.

Your spouse should also be entitled to individual pension benefits.

On divorce, there is the potential to transfer some of the State Pension Benefits to your ex-spouse dependent on your circumstances and this may be required as part of a divorce settlement.

To find out the transfer value of any benefit you can request this information from The Pension Service in Newcastle using an original BR20 form, one for each party. They don’t like photocopies and the valuation is valid for twelve months.

2. Forms and independent advice

Both are easy to check and the BR19 Pension Forecast Form and the BR20 Form are available on The Pension Service website, www.thepensionservice.gov.uk.

Whether or not you are divorcing, it’s always worth checking your State Pension to make sure you are maximising the pension benefit that could be available to you.

For married couples, I would usually recommend that both parties check to ensure that the household will benefit from this income.

Your Independent Financial Adviser (IFA) can also look at this information for you to see if there are any shortfalls in the value and if this can be added to with extra contributions.

This information should be explained in the detail. It’s just a question if it offers good value and this is where advice is vital.

3. Tax on the income

You knew that income tax will come up somewhere.

Currently the income from the State Pension is paid gross to the recipient, but is taxable. This may mean that any other earned or pension income you receive above the State Pension has a greater tax charge to take account of the State Pension already in payment.

4. Contribution records and State Pension Benefits after divorce

I hope that your financial negotiations have gone as well as you planned. Remember, you pay to argue.

When the divorce is finalised and completed, you can re-check the State Pension benefits available to you, to see whether they have changed.

As a point of interest, you may see an increase in your benefits if your spouse’s National Insurance contribution record was higher than yours as they may use this record as a substitute.

Again, you can use a BR19 form for this, updated with the concluded changes, such as the fact that your marital status is now ‘divorced’ and the date of the divorce. The detail comes back in around a month’s time, however the time taken can vary.

5. Further details

Divorce can be a difficult and emotive time, but with some focus and quality advice, I hope that you reach your objectives. Thsi article should not be seen or used as individual advice.

To expand on all things divorce and the fundamentals, I have been able to outline the full process in my new book, Addicted to Wedding Cake, The Journey of Divorce.

Further details of this are available at our websites, www.addictedtoweddingcake.co.uk or www.churchouse.com.

Keith Churchouse is Director of Churchouse Financial Planning, a firm of Chartered Financial Planners in Guildford, Surrey. Keith is a Chartered Financial Planner and Certified Financial Planner (CFP) professional. Churchouse Financial Planning Limited is Authorised and Regulated by the Financial Services Authority.