June 30, 2024
When relationships end, understanding the impact on pensions can be crucial for financial security. This guide simplifies Pension Adjustment Orders (PAOs) for retail individuals navigating divorce, separation, or the end of a civil partnership.
What is a Pension Adjustment Order (PAO)?
A PAO is a court order that allocates a portion of a member’s pension benefits to their ex-spouse or dependent family member. It’s the only legal way to divide pension benefits during the dissolution of a relationship.
Â
Key Concepts
- Designated Benefit: The portion of the member’s pension awarded to the non-member spouse under the PAO.
- Member:Â The individual whose pension is being divided.
- Non-Member Spouse:Â The ex-spouse who receives a portion of the pension.
Options for the Non-Member Spouse
- Keeping the Designated Benefit in the Member’s Pension:
If the non-member spouse does not transfer their designated benefit, they will only receive retirement benefits when the member retires.
- Retirement Lump Sum:Â They can receive part of their benefit as a lump sum, independently of the member’s actions.
- Balance of the Fund:Â Any remaining benefits will follow the member’s choices, such as opting for an annuity.
Â
- Transferring the Designated Benefit:
The non-member spouse can transfer their portion into a pension of their own. This allows them to independently manage their retirement benefits.
- Earliest Access:Â Benefits can only be accessed based on the member’s age and pension type.
- Personal Retirement Bond: 50th birthday of the member.
- PRSA (Personal Retirement Savings Account): 50th or 60th birthday, depending on the member’s employment status.
Â
Tax Implications
Both the member and the non-member spouse have separate €200,000 tax-free limits for retirement lump sums. Exceeding this limit incurs additional taxes. The designated benefit remains part of the member’s pension for tax purposes, affecting both parties’ tax calculations.
Â
Scenarios Upon Death
- Member Dies Before Retirement:Â The non-member spouse receives the current value of their designated benefit.
- Non-Member Spouse Dies Before Retirement:Â Their designated benefit is paid to their estate.
Â
Choosing Lump Sums and Annuities
The non-member spouse has flexibility in choosing between a salary & service lump sum or a 25% retirement lump sum. Remaining funds can be used for an annuity, transferred to an Approved Retirement Fund (ARF), or taken as a taxable lump sum.
Â
Important Considerations
- Legal Advice:Â Given the complexity, legal advice is recommended to navigate PAOs.
- Scheme Rules:Â Company pension schemes have specific rules that may impact these options.
Â
Understanding Pension Adjustment Orders and the options can help individuals better manage their financial future post-separation, ensuring they make informed decisions about their retirement benefits.
If you have any questions on Pension Adjustment Orders or would like some help with your options, please contact us today at hello@imperiuswealth.com to arrange a no obligation consultation.
Need assistance with your retirement plans? Talk to Mike today!
Subscribe to the latest news and insights from Imperius Wealth
imperiuswealth.com needs the contact information you provide to us to contact you about our products and services. You may unsubscribe from these communications at anytime. For information on how to unsubscribe, as well as our privacy practices and commitment to protecting your privacy, check out our Privacy Policy.