Impaired life annuities and pension sharing in divorce
BY Stephens Scown LLP’s family solicitors in Exeter, Truro and St Austell - who are ranked as the best in Devon and Cornwall by independent legal guides Chambers and Legal 500, look at impaired life annuities and pension sharing in divorce.
For most people divorce is bad enough without the added complications of ill health. If however both these events coincide it is vital for detailed legal and financial advice to be taken in relation to pensions.
In divorce settlements the basic approach that pensions acquired during the marriage are likely to be equally divisible by pension sharing between the couple – i.e. the general objective will be to share the pension income equally between the couple. What if, however, one of the couple has a long term serious medical condition such as type 1 Diabetes? In that situation, subject to medical evidence, that person would be likely to be able to purchase a higher pension/annuity for the same cash, than their healthy spouse. This is often called an “impaired life annuity”, or an “enhanced annuity”.
If the legal advisers are not alive to this issue within a divorce the healthy spouse could find themselves considerably worse off in income terms than their spouse with a health issue if the pension fund value itself is divided equally.
Impaired life annuities within divorce settlements can present a partial solution to the common problem of there being not enough pension to go round by maximising the pension income for the less healthy spouse whilst allowing an increased fund for the healthy spouse.
Pension sharing is a complex area in which the best quality advice must be sought. We work closely with pension actuaries and IFAs to ensure that the best possible solutions are fully explored for our clients.
Liz Allen is a partner and divorce solicitor in Exeter, specialising in financial and business divorce settlements. She is regularly identified as a leader in her area of law by independent guides to the legal profession, the Legal 500 and Chambers and Partners, as well as being named on the 2010 Citywealth Leaders List, an international guide to the most highly regarded figures in private wealth management.