News & Insights

When going through a divorce or dissolution of a civil partnership, there are many important things to consider and one area that often requires careful attention and professional advice is the division of pensions.

Your pensions will provide your future financial income upon retirement as well as potentially a tax free lump sum to start your retirement off with. During the course of the marriage one party may have had the opportunity to build a substantially larger pension than the other party for such reasons as being in a higher paid employment, working in the public sector ie NHS; Armed Forces and/ or Police and/or having worked full time whilst the other party worked part time or was a stay at home parent.

When dividing pensions during a divorce or dissolution, the process is often more complex than splitting other assets, such as a bank account. This is because the true value of the pension as an income upon retirement is only known through the obtainment of a Pension Report. A Pension Report would be commissioned by your solicitors. The solicitors would ensure that their letter of instruction is bespoke to the needs of your case and provides the pension expert with the evidence in respect of the pensions they required to prepare the Pension Report. Some ex-spouses would prefer an off-set of their pension entitlement against equity in the family home or savings, this can be incorporated into the Pension Report.

Am I entitled to a share of my spouse’s pension?

You might be wondering whether you are even entitled to a share of your spouse’s pension, but generally the answer is ‘yes’. Pensions built up during the marriage and prior cohabitation are usually considered marital property, regardless of whose name the pension is in.

It is important to understand that this does not automatically mean there will be a 50:50 split. The courts will consider all of the relevant factors before deciding how those pension assets should be fairly divided, such as:

• the length of the marriage;
• respective ages;
• Any health issues
• respective financial needs;
• contributions to the family;
• income and future earning capacity; and
• the value and type of pension pots on both sides.

A particular consideration for the court would be whether there is a significant disparity in your respective pension pots, and if the party who has less in the pot has the ability to build theirs up or not. For instance, if you are still in your early 40’s but gave up work to raise the children, you may have had few opportunities to make pension contributions while your spouse flourished in their career and maxed out their pension contributions. A court would explore whether you still had enough time to get back into gainful employment and build up your pensions to an adequate amount before you reach pensionable age. If it decided you did not have that ability, it could award you a share of your spouse’s pension pot to try and achieve some sort of fair and reasonable parity.

What specific pensions information do I need to give to my solicitor?

There are different types of pensions and your solicitor will need to consider all the schemes you each have in place.  For each pension scheme, you can start by providing the following:

• pension scheme provider’s name and contact details;
• policy or membership number;
• the type of pension scheme – e.g. personal pension or SIPP?
• the cash equivalent transfer value (known as CETV or CE value);
• the most recent annual pension statement – you should have this for your pension arrangements and it would likely contain all of the information points above;
• start date of the pension; and
• accurate details of when your marriage began and ended.

If you do not have an annual statement, there is a specific form that your solicitor can complete and send to the pension company for the relevant details.

Once your solicitor has gone through all the information on the pensions you are able to provide, they will advise you about whether further details or documents are needed. The solicitor is unable to advise you of the terms of the pension sharing order but will skilfully draft a letter of instruction to a chosen pension expert to prepare a report as to what the % split of the pension sharing order should be depending on your circumstances and/or needs. The Pension Sharing Order may provide for equalisation of pension income upon pensionable age, equal capital division or an off-set calculation

How does the court divide a pension?

There are three main ways the court can divide a pension on divorce or dissolution, to achieve a financial settlement. These are:

1. A pension sharing order – often this is the preferred method as it can help achieve a clean break so you are not financially tied to your former spouse. It is essentially an order telling the pension provider to carve out a portion of one spouse’s pension arrangement, and transfer that to the other spouse. Some providers offer the option to have a separate pension plan with them, or you can choose to invest your share with a different pension provider.
2. A pension attachment order – this is less common as it keeps parties tied to one another. The pension would fully remain in one spouse’s name and the provider would be told to pay a portion of the pension benefits (income and lump sum) to the other spouse. There would be no separate pension plan for the receiving spouse and a lot would still depend on the other party. A clean break would not be achieved. The spouse in receipt of the pension income by way of a pension attachment order will be reliant upon the other spouse therefore if they passed away the pension would cease to exist at that point.
3. Pension off-setting – this approach achieves a clean break without directly sharing the pension if there are sufficient other assets. Once a value is agreed for the relevant pension(s), you can seek a calculation as to a fair off-set amount for equity in a property or money in a bank upon separation as opposed to your share of your spouse’s pension. It should be noted that £ for £ the value of the pension will be less than equity or money in the bank due to various factors including taxation and the age you’re permitted to draw down on your pension

How we can help

When going through a divorce or dissolution proceedings, settling the finances is always the most stressful element. Pensions are complex arrangements by their nature and it is important that you seek advice from one of our experienced family law specialists at the earliest opportunity to guide you in the best direction.

For further advice please contact one of our Family Law experts.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.