Well-paid divorcees could lose out from retirement tinkering in Emergency Budget

26th June 2015


The Emergency Budget could hit the retirement plans of well-paid divorcees, according to financial planner Michael Brooke of Clarion Wealth Planning.


The Conservative manifesto pledge to taper the annual pension allowance for those earning more than £150,000 from £40,000 a year to £10,000 could ‘play havoc’ with retirement plans.


Under the proposal the annual allowance will fall by £1 for every £2 earned above £150,000. This means anyone earning £210,000 or above would only be able to receive tax relief on £10,000 of pension contributions each year.


Brooke said this could be a problem for divorcees with existing pension sharing orders who, ‘on the assumption they would be able to rebuild their pots quite rapidly by making large contributions, opted to share a larger than normal proportion of their pension fund with their former spouse in order to retain a greater share of other matrimonial assets’.


If the proposals comes to fruition these high earners will no longer be able to rebuild their pension pots as over a 10 year period, a person earning £210,000 a year will only be able to save £100,000 rather than £400,000.


Brooke said those whose divorces took place between 2007 and 2011 could be worst hit as in 2007 the annual allowance was set at £225,000, rising to £255,000 by 2010 before being cut to £50,000 in 2011 and reduced again to £40,000 from April 2014.


‘The effect could be compounded if, as announced in the pre-election Budget, the lifetime allowance for fund size also reduced from £1.25 million to £1 million from April 2016,’ he said.


‘Future divorce settlements will be able to take account of any reductions in allowance but those with existing settlements may need a radical rethink of their retirement planning strategies.’


He added that business owners who have put off making significant pension contributions until later in their working lives could also find themselves in a similar position.


‘If this policy does form part of the Budget, I would recommend anyone affected to seek financial advice at the earliest opportunity,’ said Brooke.



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