Mike Brown, head of pensions and retirement at Abbey for Intermediaries, is highlighting a reversal of government practice that will enable the vast majority of divorcees to rebuild their pension rights within the tax-approved pension system.

People who have had their pension rights cut as a result of a pension share arrangement ordered by the courts in divorce proceedings, will be able to rebuild their pension rights under the new simplified tax regime that comes into effect on A-Day (6 April 2006).

From A-Day the amount of the pension share will count against the recipient’s lifetime allowance, rather than the donor’s lifetime allowance. The donor can then rebuild their full rights, a significant shift from the current practice that only allows this to happen in very limited circumstances, i.e: in the case of a non-controlling director who in the immediately preceding tax year earned no more than 25% of the earnings cap applying in the tax year during which the marriage was dissolved or annulled.

The new rules will apply to pension sharing orders granted before and after A-Day, although rights cannot be restored if benefits are taken before A-Day.

The recipient under a pre A-Day pension share arrangement will be able to register the additional rights, using a special registration form, within three years of A-Day (by April 2009), increasing their lifetime allowance in the process.

Mike Brown, Head of Pensions and Retirement at Abbey for Intermediaries, said: “This is a very welcome move as the vast majority of divorcees will now be able to rebuild their pension rights, whereas previously this only applied in a small number of cases."

“Many people in that situation may not have considered the implications of A-Day on their divorce settlements, so it’s vital that IFAs are able to give the right guidance at the right time, to ensure their clients’ interests are protected as far as possible.”