It has recently emerged that there is an unintended, unforeseen consequence of the new DC (DC) rules which came into force on 6 April 2015, which enable individuals to withdraw their entire pension fund from the age of 55. Experts have warned that the new rules create a loophole which can override an earmarking order.

Earmarking order

Earmarking orders were introduced in the Pensions Act 1995 and made available in divorce settlements between 1996 and 2000 to enable the diversion of a member’s pension income to a former spouse, once the pension becomes payable. Many couples who divorced between these dates signed agreements to share the income benefits saved up by the main breadwinner.

Earmarking orders were heavily criticised for many reasons and therefore proved to be of limited practical use. Thus they were succeeded by pension sharing orders at the end of 2000. The loophole does not apply to pension sharing orders.

The issue

If a divorcee, who has agreed to split a pension pot with an ex-spouse in retirement, withdraws his/her pension pot in its entirety without taking an annuity this could effectively override an earlier earmarking order. This means that a large number of individuals relying on regular pension payments after a divorce could be left with nothing in their old age as a result.

Jon Greer, an Old Mutual Wealth pensions expert has said that:

“The majority of these orders would have been for the benefit of the ex-wife, and an unintended consequence of the pension reforms is that any divorcees with such an arrangement may need to act fast to protect their benefits.”

The new reforms therefore have the consequence of depriving earmarking orders of their design to ensure a fair deal if one spouse had built up a larger pension pot during married life. It is thought that this may be a chance for spiteful divorcees to now take full withdrawals of their pensions as a way of depriving an ex-spouse of a share of their retirement income.


Divorcees should now be advised to check their arrangements urgently if they entered into an earmarking order and seek advice, as much depends on the precise wording of the divorce settlements. It would be regrettable for individuals who have gone through potentially difficult and unpleasant divorce proceedings so long ago, to face such further issues now. Divorce settlements can already present as extremely complex in having to unravel the financial structures people are in and this will add yet another layer of complexity.

This only adds to the controversy over the new pension freedoms, as many pensions specialists are claiming that most people are already abusing the new rules to use their retirement funds as cash machines, withdrawing large amounts of money whenever they need it, and there is concern over what this will lead to for their future.

This post was contributed by Hannah Algrafi. For more information, email

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.