Pensions are often ignored on divorce for a variety of reasons, including how complicated they can seem, and that people, particularly women, do not realise that pensions can and should be part of financial discussions in divorce. This is particularly true when people do not have legal representation. However, ignoring pensions in the divorce process can mean you miss out on potential long term income and future financial security.
When getting divorced, a couple should get a financial settlement. This settlement covers all the assets of both parties, including the important area of pensions.
Where a Pension Sharing Order is made in your favour within the financial settlement, you will get a percentage share of one, or more, of your spouse’s pensions. This share will then be transferred into a pension in your own name. Using pension sharing enables parties to reach a clean break, ensuring both parties receive a fair share of the pensions.
Stowe Family Law Paralegal, Becka Headley explores what Pension Sharing Orders are, how they work, and how best to navigate them.
What pensions will be taken into account by the court when making a pension sharing order?
When considering whether to make a pension sharing order, the court will consider the total value of the pensions both parties have built up, including pre-marital pensions.
In some circumstances, for example if the marriage was short, it is possible to ‘ringfence’ pensions that were built up before the relationship.
Pension sharing orders can cover personal pensions schemes, including money purchase schemes and self-invested pension plans (SIPPs), as well as occupational schemes which you have built up through employment.
The basic state pension is not shareable within a pension sharing order, but the court can look at the income that is expected to be received from the basic state pension when considering the division of other assets and each party’s future income needs.
How do I obtain a pension sharing order?
The splitting of pensions can be sought within the financial settlement following separation from your spouse. Only a court can make a pension sharing order, either with the consent of both parties, if matters have been agreed between you, or imposed via court order if financial proceedings have taken place.
The pension sharing order is outlined within Form P1, which needs to be served upon the pension provider so they can implement the order by dividing the pension in accordance with the figures given in the Form P1.
There is no court fee for a pension sharing order itself. However, the pension sharing order will be sent to the court for the Judge’s consideration with either:
- A Form A application, which this is the financial application submitted to the court to commence financial remedy proceedings. The cost of the application is currently £275; or
- A consent order if matters have been agreed between you. Submission of a consent order to court currently costs £53.
Where do the funds from a pension sharing order go?
If you are the one receiving a share of your ex-partner’s pension, it can be kept with the same pension provider, making you a member of the fund that is being shared (an ‘internal transfer’) but the fund will be in your sole name. Alternatively, you can transfer it out into a different fund (an ‘external transfer’).
Some schemes only allow internal transfers (such as public sector schemes like the NHS), while others do not permit this and require an external transfer. There are also several schemes which offer an option as to which type of transfer you would like. There are often better benefits available from the pension if you have an internal transfer.
It is recommended that you seek independent financial advice as to what the best transfer option is for your individual circumstances.
When does a pension sharing order start?
A pension sharing order can only be made if your divorce is completed and the Final Order (previously known as decree absolute) of divorce has been pronounced. The pension sharing order will become effective 28 days after the date of the order being granted by the court, on the basis that final order has been pronounced.
It is vital that the pension sharing order is implemented, as failure to do so can lead to severe financial loss for the receiving spouse.
Pension sharing is unaffected by remarriage or death of a spouse.
How do I know the value of our pensions?
The value of your pension can be obtained by requesting a Cash Equivalent Transfer Value (CETV) from your pension provider.
However, it is advised that high worth pensions are valued professionally by an actuary or pension advisor. A valuation by a professional will consider the true value of the pension, including any benefits alongside the pot value.
Can pensions be split after we have retired?
If either or both spouses have retired and pensions are in payment, they can still be split.
However, if your ex-partner’s pension is being paid out, it is not possible to take a lump sum payment. You also cannot take a lump sum if the pension has been used to purchase an annuity.
When is pension sharing a good idea?
Whether a pension sharing order is the right choice for you will depend on your unique financial situation. Therefore, it is important to seek legal and financial advice.
A pension sharing order is usually made when capital assets and income of the parties are not sufficient to provide adequate financial settlement for both parties.
The orders are a good option if one spouse has a high value of pensions compared to other spouse, or if you are close to retirement age and are unlikely to build your own pension pot.
Further, you may wish to take benefits from the pension credit early, rather than waiting until your spouse retires. Pension sharing orders can also be used to nominate the potential beneficiaries of death benefits if you die before taking retirement benefits.
What is pension offsetting?
Another option is pension offsetting. This is where one party keeps a larger share of another asset, most commonly the family home, instead of receiving a pension share.
The value of a pension, which is a future income stream, cannot be exactly compared with the value of a property or money in a bank, which is immediately available. Due to further benefits that you can receive from a pension fund, on top of the monetary value of the pension, a pension CETV is not pound for pound figure. Therefore, where offsetting is taking place, it is particularly important to obtain a professional report from an actuary of pension advisor.
Pension attachment orders
A pension attachment order is where some of the benefits from a fund are earmarked for you in the future, so when your ex-spouse’s pension starts being paid out, you get a share of this.
This can come as income, a lump sum or potentially both. However, you cannot get the payments until your ex-spouse has started receiving from their pension.
These are rarely used as the order terminates when the pension-owning party died.
If you’d like advice in relation to obtaining a Pension Sharing Order, Stowe Family Law are here to help you. Please note that we can only provide legal advice and are unable to provide financial advice. We therefore recommend you obtain independent financial advice before agreeing the terms of a pension sharing order.
Useful Links
Do you split a pension when divorcing?
The Importance of Pensions in Divorce
