Pension Annuities on Divorce
Dec 03, 2013
This blog is about reversionary interests.
Reversionary what I hear you say. Well when a annuity is set up it is often done so on a joint life basis. This means that on the demise of the first life the benefits are paid to the joint life for the rest of his or her days on usually a 50% basis but it can be set up with any % retained for the spouse including 100% (and I don’t want to distract you with that bit). It isn’t one of those reversionary interest revert to settlor trust things either by the way.
See the thing is what happens on divorce? Does the joint life continue to the spouse after divorce and he/she receives the ongoing income or does the devilish insurance company keep the loot because a divorce has occurred? This week I was asked to look into this very issue for a client so I thought I would blog about it here. This is one of my pro bono cases so I have to find a use for them somewhere!
In his words “My understanding of the joint life was just that joint life why should divorce change things as I still have to provide pension on divorce. Why would the insurer want to profit from a divorce when they have already agreed to pay 50% of my pension on my death, its my money after all. And if this was the case why is it not standing out in big and bold letters. Again thank you for your help, when I was in industry I like to do a good deed, sorry I thought this would be a quick issue to solve. Before I challenge them I need to be sure of the facts.”
Well the key to this was to approach the insurance company for chapter and verse. His spouse was actually named on the policy and this is the important bit. So if he was to die post divorce then the spouse’s benefit would be paid to the named person (his ex-spouse). This would be the case even if he undertook pension sharing.
Contrast this position with that of an unnamed spouse on the annuity which is set up to pay “any” spouse. On death the benefits would not be paid to her because post divorce she is not his spouse. It is my understanding that annuity companies will often in divorce situations allow the reversionary interest to be removed opening up some great planning opportunities including of course pension sharing.
So it depends what you are trying to achieve. If you are looking to protect on death then this issue is very important when dealing with an annuity.