Q. I am in the process of getting divorced. It looks as though we are going to have to sell our house and divide up the equity. My solicitor says I may get less than half of this, however, because I have a Pension in the Civil Service, but my wife, who has not got any pension and always spent everything she earned, will get more. Is this right?
A. It is difficult to comment on the information provided, and in particular you have not mentioned if there are any children involved, or how long you have been married. However since 2000 there have been 3 main choices when it comes to dealing with pensions in divorce. The one which has always been there is “Offsetting”. Here, the value of the pension could be weighed against other assets. In this case, this might be a case of you keeping your pension, with your wife keeping the equity in the house. The second method is called an attachment or “earmarking” order. Here, your wife would receive some of your pension or pension lump sum when it comes into payment. However this is not very satisfactory in her situation, as the pension ceases when you die, as it remains linked to your life, and your decisions about when to retire etc. Since December 2000 there has been a third choice, which is called “Pension Sharing”. Here, the court would award your wife a share of your pension. A reduction (debit) is made to the pension you have accrued up to the date of the order, and the scheme actuary will calculate how much pension “credit” she will receive, at the time she chooses to retire. Private pensions tend to offer an external fund for her to take to the provider of her choice, but unfunded public schemes such as, in your case, the Civil Service scheme, would create a “shadow member” record for her, so they do not have to pay out a lump sum immediately. It sounds as though your solicitor is proposing either offsetting, or possibly a combination of offsetting and sharing.
Q. I have recently become a grandparent for the first time, and would like to start a savings account for my new grand-daughter’s future. What would you advise?
A. First of all congratulations! As with all types of investment, the advice depends on the time period you wish to invest for, and how much risk you wish to take with the investment. If you want to be able to access the savings in the shorter term, then a savings account might be appropriate. Interest rates are generally quite low at present, for example there is a National Savings account with 0.75%pa interest offering access and security of the capital. If you were able to lock the money away for 5 years, there are Children’s Bonds, again from National Savings, with a rate of 2.5%pa free from tax, maximum £3,000. If you want your grand-daughter to be able to access the fund at 18, and can accept a degree of investment risk, you are likely to get better returns from a Junior ISA, where the investment can be linked to the stock-market, and you can invest up to £4,080 in 2015/16. Over that period of time, the daily ups and downs we hear about on the news every night should average out to offer a much better return than that from cash. Finally, although this is currently your only grandchild, bear in mind that she may not be the only one. You will find it impossible to treat the next one differently. I would suggest ensuring that the precedent you set is an affordable one!
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
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