An easy guide to pension sharing on divorce
Pension sharing can be a complex aspect of divorce proceedings. Here we break down the basics for you:
What is Pension Sharing?
Pension sharing allows a court to divide the value of a pension fund between spouses or civil partners in a divorce or dissolution process.
What do I need to do?
Request the pension valuations: The value of all pensions, including in most cases, state pensions, must be obtained. This can take some time, and in respect of some schemes, many months and so it is important to gather this information at the start of your divorce process, rather than leave it to the time that you would require terms of agreement to be formalised.
How is the valuation of a pension obtained?
The value is assessed by the pension administrators of the pension scheme based on a “cash equivalent transfer value” (CETV). This represents the cash value of the pension in its simplest form and takes into account the value of the pension as a whole, not the value of regular ongoing pension payments.
How is the pension share calculated?
Agreement is usually reached on the objective of the pension share, including whether or not pension pots or equality of retirement income are to be shared and if any parts of pre- marital or post-separation pension contributions are to be ringfenced although this may not be appropriate in needs cases.
Do I need a Pension Sharing Report
In most cases, a pension sharing report is required to calculate the percentage of the pension to be shared and to report on the pension pot that the pension share should be debited from. Depending on the types of pensions involved, either a Pension Expert On Divorce or an actuary would be instructed to calculate the percentage of the pension share.
How does Pension Sharing work?
- Agreement is reached, or the court orders the percentage of the pension to be shared.
- The order is made by the court and the pension sharing order and annexe are served on the pension trustees for implementation.
- The pension trustees may need additional administrative information and have up to four months to implement the order.
- The implementation can take place either by way of internal or external transfer:
- Internal transfer: The receiving spouse becomes a member of the original pension scheme, holding their share in their own name.
- External transfer: The receiving spouse’s share is transferred to a separate pension scheme of their choice in their name.
- The pension transfer takes place as a debit from the transferor’s pension scheme and is credited into the pension pot.
What if I want to keep the house and not claim on the pensions?
In some cases, you may choose to forgo pension claims in order to receive a greater proportion of another asset such as the family home. However, this should only be agreed following professional advice as many pensions are worth more than their face value. A fair trade off can only be evaluated with a pension sharing report.
Key points to remember:
- Pension sharing orders can be agreed upon through negotiation between spouses.
- The agreed pension sharing order is made by the court either by a consent order agreed by the parties or by its own order.
- The sharing percentage doesn’t necessarily translate to equal income in retirement. Factors like pension scheme rules and retirement ages can play a role.
- Not all pensions are eligible for sharing, depending on the scheme’s rules and the pension location.
- If you are living abroad, you still may be able to obtain a pension sharing order in the courts of England and Wales against a UK pension.
Do you want to make the most of your pensions options on divorce?
Contact Just Family Law for professional advice: joannehouston@just-family-law.com 01962 217640
Given the complexities involved, seeking legal and financial advice from professionals experienced in divorce and pension sharing is crucial. We can guide you through the process, ensure fair outcomes, and answer any specific questions you have about your particular circumstances.
