Posted July 12th, 2010
As a Resolution Accredited Independent Financial Adviser (IFA) I am often asked to provide a summary of how we can work with clients through the Collaborative Law process. Below is taken from a flyer which is provided to the lawyers at the Greater Manchester POD.
HOW THE IFA WILL WORK WITH YOU AND YOUR SOLICITOR:
IFAs will be accredited by Resolution to work in the collaborative area, having undertaken training on the technical and cultural aspects involved, and passed an examination on the subject.
The IFA acts as a ‘financial neutral’ – rather than representing one party, their role is to assist all parties in highlighting issues and providing information that enables the collaborative process to move quickly and smoothly.
In addition to their specialist technical knowledge, IFAs can outline options to parties and comment on risk factors (eg in terms of pension options) which solicitors are unable to do as they are not authorised to give financial advice.
IFA’s can attend a first meeting with the Solicitors present, so as to display to the parties how they may add value to the process. At your discretion, IFAs can subsequently meet you without your solicitor being present, so as to control total costs.
EXAMPLES OF WHERE THE IFA IS ABLE TO HELP:
• Tax efficiency and mitigation if assets or investments are being sold as part of the agreement (eg ISAs, Capital Gains Tax issues).
• Pension-sharing issues under occupational final salary schemes, for both the scheme member and the ex-spouse.
• Issues surrounding individual pensions, including retirement options.
• The cost of replacing items under an employee benefits package for the ex-spouse (eg life cover, critical illness cover, private medical insurance).
• Mortgage availability and costings in relation to the marital home.
• Assessment of endowment policies and the options going forward.
• General financial education
• Budgeting exercises and lifetime cashflow projections to determine whether the agreed settlement will be sufficient to support the financial requirements of each party over time.
If you require any further assistance, please contact us on 0800 092 1229 or email advice@thedivorceifa.co.uk
Tags: Budgeting exercises, Capital Gains Tax, Collaborative Law, critical illness cover, Employee benefits, endowment policies, Ex Spouse, Final Salary, financial education, Financial Neutral, Greater Manchester POD, IFA, ISAs, life cover, lifetime cashflow projection, marital home, Member, Mortgage, Occupational Final Salary, Pension, Pension Sharing, POD, private medical insurance, Resolution Accredited, Resolution Accredited IFA, Settlement, Solicitor, Tax efficiency | Posted in Financial Advice |
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Posted February 8th, 2010
In many occupational schemes (especially the statutory ones – e.g. Police, Armed Forces) there has been a disparity between the normal retirement age of the member and that given to a pension credit member (the ex spouse). For example, the member can retire from the pension scheme at age 52 but the ex spouse cannot retire until age 60.
In addition, where the pension is in payment, there will be an immediate reduction of benefit for the member but the ex spouse’s pension will not kick in until age 60 (which could be many years away).
This issue has been neatly termed as “income gap syndrome” and it has been found not to go against the anti discrimination provisions of European Law.
Of course, this assumes that the ex spouse decides upon an internal transfer as the means to facilitate the pension share. There may be many reasons why the other option (an external transfer) is appropriate, but there will many situations where the only choice available is an internal transfer.
Regulations which came into force in April 2009 made provision for a partial solution to this issue which some of the statutory schemes are now starting to implement. The NHS scheme will now permit pension credit members to draw benefits after age 50 (or 55 from 6 April 2010) whilst an Armed Forces (2005) pension credit member can draw benefits at age 55. It should be noted that actuarial reductions will apply for early payment.
From a financial planning point of view it is wise to review the drawing of a pension credit benefit in line with your overall goals and objectives to ensure that any reduction is understood and budgeted for.
For more information on this please contact me on 0800 092 1229 or contact me by email, phil@thedivorceifa.co.uk
Tags: Actuarial Reductions, Armed Forces, Divorce, Early Payment, Ex Spouse, Financial Planning, Income Gap Syndrome, internal transfer, NHS Scheme, Normal Retirement Age, Occupational Scheme, Pension Credit, Pension Credit Member, Pension Scheme, pension share, Police, Spouse, Statutory Scheme | Posted in Pension Credit |
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Posted October 23rd, 2009
I am often asked why earmarking is not used more often. Since 1996 such settlements have been available but not widely used.
My own view is that in certain circumstances an earmarking order can have its merits and if drafted correctly, with the right protections placed around it, can ultimately meet a client’s needs.
However, there are a number of key limitations which need to be fully understood. It will pay to review your options in full and ensure that if earmarking is deemed to be appropriate, you have discounted the other options of pension sharing and pension offsetting, and vice versa.
I have set out below some of the main advantages and disadvantages of this option.
Advantages
• It allows for both the tax free cash benefit as well as the pension income benefit to be earmarked.
• Death in service benefits can also be earmarked.
• It is possible to use an earmarking order in circumstances of judicial separation and nullity not just on divorce.
Disadvantages
• It cuts across the clean break principle as the pension holder can decide when to draw the pension and lump sum benefits, perhaps delaying this beyond their normal retirement.
• The benefits payable to the ex-spouse cease when the pension holder dies.
• Often, the ex spouse has no control over how the funds are invested (and therefore this could be in higher risk assets).
• The member could (out of spite) opt out of the original scheme and start a new post divorce arrangement potentially reducing the earmarked benefit.
• The automatic termination of the court order on remarriage of the ex spouse is a clear incentive to continue to cohabit.
• The entire pension is taxed in the hands of the pension holder and earmarked payments are made after tax has been paid. Often this will not be tax-efficient for the ex-spouse.
Have you fully reviewed your options on divorce? How in control do you feel on your decision-making? Should you consider earmarking and how much should be earmarked?
If you wish to discuss any of the issues here, please call me in confidence on 01204 663904.
Tags: clean break, Cohabit, Court Order, Death in Service, Divorce, Earmarked, earmarking, Ex Spouse, Judicial separation, Normal Retirement, Nullity, Pension, Pension Attachment, Pension income, Pension offsetting, Pension Sharing, Tax Free Cash | Posted in Pension Attachment |
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