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Abolition of pensions divorce limits delayed six months

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  • Abolition of pensions divorce limits delayed six months

UK - Restrictions imposed on people who receive part of their ex-partners pension benefits following a divorce will be removed from April 2009 - at a delay of six months - the government has confirmed.

In its response to a consultation on pension sharing amendments of the current Pensions Bill, the Department for Work and Pensions (DWP) confirmed it will remove the current restrictions preventing people from drawing benefits before normal pension age on the grounds of ill-health.

The response also stated safeguarded rights - the part of a pension credit from a divorce that is derived from contracted-out benefits similar to protected rights in personal pensions - will be abolished on 6 April 2009, along with the current restrictions that stop benefits being taken before the age of 60 and cannot be paid as a tax-free lump sum.

There are currently more than four million divorced people in the UK, and Standard Life, the UK life and pensions company, claimed research commissioned by the firm had shown of those with a pension, 11% either had to give away part of their pension or received some from their ex-partner.

Andrew Tully, senior pensions policy manager at Standard Life, said: "This change is long overdue and will be especially beneficial to women, who are more likely to receive pension benefits as part of a divorce settlement."

Under UK law, pension benefits can be offset - where an asset of equivalent value is substituted for the share of the pension - which is the most common solution but they can be split.

But the safeguarded rights come with restrictions on how they are spent for one party, while the original member can take benefits from age 50 and get 25% as a tax free lump sum.

Tully said: "Giving people more flexibility to take pension benefits when and how it suits them best is a welcome development. When going through an emotional upheaval like divorce or separation, pensions are unlikely to be at the forefront of people's minds. But starting afresh can have serious implications on your financial future, so it is crucial to take expert financial advice."

The removal of the restrictions were originally scheduled to take place in October, but in its consultation response the government argued that the current Pensions Bill, if passed, will not receive Royal Assent and become law until after October 1.

The amendments to the restrictions on the use of benefits from a pension credit and the abolishment of safeguarded rights will therefore both take place in April 2009.

But Rachel Vahey, head of pensions development at AEGON UK, said it was disappointing the changes had been pushed back six months.

She said: "It's a shame they couldn't have made the amendments retrospective to April 2008 to allow a significant number of women to make their own choices about retirement benefit solutions, as this is not something in the future, this is affecting people now in how they spend their money."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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