Pension sharing VS cash in divorce

bluebaron

Does anyone have a quick answer on whether it’s best to give a share of a dc pension or cash in a divorce.

my thinking is for if I give £100k cash it’s cost me £145k (due tax).

I can rebuild the pension quite easily. Putting the £100k will cost me £55k

obviously there will be some loss in compound interest and maybe some fees involved.

Anything else to consider?

thanks

Brie

It will depend if the amounts are comparable.  That's why there's people that work out these things for you.

bluebaron

Oh I assumed if the “pot” was £200k and we split it 50/50. Then that’s £100k each?

dunstonh

bluebaron said:

Oh I assumed if the “pot” was £200k and we split it 50/50. Then that’s £100k each?

But what if the other partner cannot access the pension and needs money immediately?   
You may prefer to retain your pension or prefer to use it.
its all about overall wealth and how best to do each case individually.  There is no rule of thumb.

obviously there will be some loss in compound interest and maybe some fees involved.

There will only be compound interest if you are in interest-paying investments.    Pensions share the same investment options as ISAs and unwrapped.  So, any transfer from any wrapper is going to get a loss against it.

bluebaron

Yes I understand the basic‘s of what pension sharing is I was just asking whether it made more financial sense to give cash (from house sale) or transfer from a DC pot. 

Assuming the other party doesn’t care either way.

Linton

I dont see your logic in basing your decision on the historic cost - that has already been paid.  It's the future cost that matters. If you paid the settlement out of your pension what would you do with the unexpected £100K in cash?  Would you want to spend it, use it to rebuild your pension taking full advantage of the tax relief, or keep it in say an S&S ISA for your retirement?

I suggest you cost out the full tax effects of each scenario.  Dont forget that although you get tax relief putting money into a pension it costs you tax to take it out.

GDB2222

When I did this sort of work for a living, it was usual to apply a discount to the money in the pension fund, when compared to cash in the bank.

It would depend on your individual tax positions, but a 30% discount would be a common starting point for higher rate tax payers.

There is so much written about this, and easily accessible on the www, that you don’t need to work it out from first principles. Here’s a link to get you started. 

https://techzone.abrdn.com/public/pensions/Tech-guide-pensions-divorce-opt

bluebaron

Interesting link, so from that I deem that if I give my ex 50% of my pension I can reduce this by 30-40%. I doubt she will except this though. 

Ie: £100k  pot, I keep £65k she gets £35k cash

Bear777

I’d slow down a bit and have a good chat with your solicitor on this matter. It depends on lots of factors and the financial deal done in other areas. Equally both parties are likely to have pensions so it’s arguably a percentage of the difference of value from whomever has the ‘biggest pot’ compared to that who has a smaller pot. 

I made a ‘one off payment’ to remove any future claim on my pensions as part of my financial settlement when I got divorced. I can’t exactly remember what value of pensions I had at the time, but it was approximately a 9k per annum DB pension and a DC pot with over £100k in it…the payment I made was £10k and to be honest given my ex has a civil service pension that dates back over 20 years now I’m pretty sure she’s pleased she got that. That being said my DC pot is worth nearly £500k 8 years later so I’m happy that it’s is settled and there can be no future claims and that there is no future split required. 

With like all matters Divorce, study it hard, take your time, make sure your solicitor is giving you the best advice, question their advice at every stage and make sure you don’t get shafted along the way. 

Brie

This assumes she has no pension at all at this point.  

WYSPECIAL

A lot depends on age as that will affect the liquidity of the pension.

You can’t look at one asset in isolation, you need to consider the whole pot when negotiating how it will be split and the circumstances of the people involved, you can’t live in a pension!

Also you seem to be assuming a 50:50 split. That is merely a starting point before needs are considered.

You would probably be better off posting your details on a divorce forum.