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Pension loophole

Julie-Ann Harris explains how the recent pension reforms may affect divorcing couples

16 June 2015

The pension freedom reforms, which came into force on 6 April 2015,
give people greater flexibility and accessibility to their pensions, allowing over 55s
to cash in their entire pension subject to taxation. This may have consequences for those who benefit from 'attachment' or 'earmarking' orders from their ex-spouse's pension fund.

Attachment orders give
former spouses the right to a percentage of pension income
of the pension-owning spouse after retirement. Following the reforms, a pension subject to an attachment order can be drawn down in cash rather than be taken as income. This may have disastrous consequences on the application of attachment orders as the changes give scope to circumvent the requirements set out in the order. Unless the order is specific or a policy implemented to close this loophole, the problem
will persist.

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