Around 10,500 people shared their pensions as part of divorce settlements in 2020, research shows.
A financial adviser said the recent boom in equities has made pensions a highly desirable asset in divorces. With the value of pensions increasing, they have become an increasingly important asset in divorce settlements, second only to the family home. If you do receive a spouse’s pension as part of a divorce settlement, it would be wise to make some contributions to your own personal pension rather than using for using it for day-to-day expenditure. As the value of pensions has surged in recent years it has become much more difficult to use spare cash to buy an ex-spouse out of their share of a pension. This is a major reason for 2020s high number of split pensions in divorces. There are two different ways that a pension can be shared in a settlement. Firstly, a Pension Sharing Order will mean a direct transfer between one pension pot and another. The second, a Pension Attachment Order will mean the pension pot remains in the same hands as before but the income derived from it is split. But the trend towards DIY divorces, where settlements are undertaken without legal representation, could create problems. This is because agreements made today may be reopened tomorrow if paperwork is filed incorrectly or is incomplete. Naturally, this is more likely than when professional lawyers are involved in proceedings. The caution expressed is warranted because these DIY divorces accounted for 58 percent of all divorce settlements in 2020/21 according to the Ministry of Justice. A striking example of the problems that may arise after DIY divorces came in 2016 when a successful green energy entrepreneur was ordered by the Supreme Court to pay his ex-wife £300,000 years after their split. This was the case because both parties had earlier neglected to waive the right to make more claims against each other. While not so bad for the party receiving £300,000, many may be startled to realise that they may be vulnerable to such claims themselves if they went through a DIY divorce.
Investing for income as dividends are back
The FTSE 100 is yielding 3.7% – not too bad in an age of 0.1% interest rates. And the UK isn’t the only place to find dividends. Japan is looking attractive, too according to commentators. Dividends are certainly back. In the second quarter of this year, total UK dividend pay-outs jumped by a pleasing 51% to £25.7bn, thanks mostly to companies that cancelled dividends in March last year restarting them. Link Group (which publishes a regular UK Dividend Monitor) now forecasts that dividends should grow by around 24.4% this year, for a full-year total of £71.2bn. That is significantly less than in 2019 (just over £100bn) but nonetheless represents a good recovery with more to come as the UK economy continues to normalise. You can now get a yield of 3.7% on the FTSE 100 – which with interest rates at 0.1% and inflation rising doesn’t look bad at all. If you can cope with the risk of holding individual stocks there’s a lot more than that on offer: how about 6.5% on Vodafone? Those looking for a more diversified and international stream of income might consider Alliance Trust, a UK-listed trust that gives low-cost access to genuinely active management through the concentrated portfolios of ten excellent equity managers, most of whom UK investors would not have access to independently. The dividend yield is not super-high at the moment (1.4%) but it has risen every year for the last 54 years and Investec points out that the board is in the process of “reviewing the level and funding of the dividend to assess if a more attractive and sustainable level of distributions may be provided”. Experts suspect that it can. On the subject of attractive and sustainable dividends, in this week’s magazine we look at the Japanese market. There was a time when this was the last place you would go for income. No longer. Today the market yields 1.7% and there are even Japanese income funds (e.g., the Jupiter Japan Income Fund and the Baillie Gifford Japan Income Growth Fund). The market has been one of the cheapest in the developed world for years and – even after a 25% rise in the last year – it still is.
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