Advising clients or their Professional Advisors on the implications of Pension Adjustment Orders is a relatively complex area of the retirement planning advice we provide here in Harvest. A Pension Adjustment Order legally defines the portion of one spouse’s pension fund that is to be designated as the other spouse’s pension entitlement following a Divorce.
Following the Pension Adjustment Order the beneficiary of the Pension Adjustment Order may consider whether to leave his or her designated benefit within the existing pension structure or to transfer it out into another pension structure in their own name.
As most Pension Adjustment Orders in the future will relate to Defined Contribution Pensions (as opposed to Defined Benefit Pensions), we have outlined below some considerations as to the potential advantages and disadvantages to transferring the benefit out of an existing Defined Contribution pension into another pension plan.
Advantages of Transferring the Benefit into a new Pension in the Beneficiary’s name.
Investment
The first obvious potential advantage of transferring out is that the Beneficiary of the Pension Adjustment will have full control of their own pension benefit. Their pension plan will not be impacted by their ex-spouse’s future decisions regarding the investment portfolio within the fund and the performance – good or bad – of the investment portfolio.
The Beneficiary can make their own investment choices that better reflect their individual appetite for risk and their own retirement planning requirements.
Flexibility of Retirement Options
Another potential advantage is the ability of the Beneficiary to have more control as to when they choose to draw down their own retirement benefits. Once they have passed the earliest age at which their ex-spouse can access their retirement benefits, the Beneficiary can then decide on when they access their own pension fund independently of the ex-spouse.
Information
A third possible advantage is that the Beneficiary will be able to easily access direct, ongoing information as the main member or owner of their own pension fund. This can sometimes be difficult or time consuming if the benefit is left with the ex-spouse’s pension plan.
Disadvantages of Transferring the Benefit into a new Pension in the Beneficiary’s name.
Added Responsibility
The capacity to make their own future investment decisions outlined can sometimes be a perceived drawback to transferring the designated benefit out of the scheme.
If the Beneficiary previously left the financial decision making to their ex-spouse; they may prefer to leave the benefit in the existing pension structure and allow the ex-spouse to continue to make those decisions.
Improving the Pension Adjustment Order
If the Pension Adjustment Order is open to future variation, making the decision to transfer the designated benefit out of the pension plan means that it is not possible to go back to court to seek higher share later. This should be clearly pointed out to the client and taken into account when deciding whether or not to transfer out.
This is a complex area and good advice is essential. We recommend engaging a Retirement Advisory Firm at an early stage to avoid any unforeseen negative implications of decisions that you make now.
Contact Harvest to receive clarity around your Pension Adjustment Order and to ensure that you are comfortable that your decision the right one for you.
Talk to Harvest on 01-2375500 or email justask@harvestfinancial.ie and we will be delighted to assist.
