Posted by Simon Bassett, Partner
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Ministers may move to close troublesome new loophole
The Government has signalled it could look to close a legal loophole which has allowed divorcees to leave their former partner without a share of their pension.
Last month, George Osborne’s much-vaunted pension reforms took effect, giving savers the freedom to cash in their pension fund.
While the proposals were designed to give people a greater say about how they managed their finances in retirement, the new rules have also had unintended consequences.
The problem lies with earmarking orders – a popular arrangement with couples who have divorced in previous years.
Under these arrangements, pension income is shared, but the saver retains control of the fund.
This effectively enables an opportunist to withdraw the money, with their ex-husband or wife having no claim on the cash at all.
A number of cases have already come to light since the pension rules came into force on April 6th.
This has prompted the Department for Work and Pensions to announce a crackdown on anyone using the loophole. If the problem persists, ministers have hinted that they may change the rules.
A spokesman said: “Where people have entered into a legal arrangement to give some of their pension savings to another person, then this must be honoured.”
The issue has also led to increased scrutiny of pension arrangements in divorce settlements currently making their way through the family courts. Couples are being urged to make sure they give retirement funds adequate attention when coming to an agreement.
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