Inheritance tax: Key tax implications could leave you with a ‘smaller pension pot’ | Personal Finance | Finance

Earmarking – this is almost never used but is where an order is placed against the relevant amount of pension for it to be allocated to the divorced spouse at retirement age.

Offsetting – “Where people treat a pension as a single asset that one person keeps while the other is allocated other assets of the same or similar value. While this is a straightforward solution, it is not appropriate for everyone, as it may mean one divorcee loses out on valuable pension benefits in the long term.”

Pension sharing – “Where a pension is split between the spouses or civil partners into two pots. This would be the same even if both remained in, say, the NHS scheme. The pension would be split, and each person would have their own ‘pot’.

“This way, each person runs their pension the way they want to, and they aren’t relying on their ex to do things the right way.

“In fact, if the original pension is bumping up – or could in the future – against the Lifetime Allowance, which is currently set at £1,073,100 until 2026, then both partners could benefit from it being split as it allows both people to add to the pension when previously this may not have been possible.”

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