How your pension is affected by divorce or dissolution
After property, your pension may be the greatest value asset held by you and your spouse or civil partner. It will be taken into account when considering any financial settlement. When deciding the best way to deal with pensions following your divorce or dissolution, the court can consider the following options:
- A pension sharing order
- A pension attachment order
Pension sharing order
Broadly speaking, all forms of pension schemes within the UK can be the subject of a pension sharing order – whether the schemes are in payment or still accruing. However, the basic state pension cannot be shared.
If a pension sharing order is made, then the spouse or civil partner receiving the pension credit will receive a percentage of the other’s pension into a pension plan in their own name. Any pension benefit must be transferred into a pension scheme. Sometimes it will be possible to transfer the pension credit into a new pension plan within the existing scheme. But more likely the pension credit will need to be paid into an entirely new scheme of the receiving person’s choice.
Pension attachment order
If a pension attachment order is made then it remains the pension of the person to whom it currently belongs but a proportion of the benefits are paid to the spouse or civil partner on retirement.
Offsetting is where you may receive a lump sum of cash, or a larger share of a property in return for not making a claim (or having a smaller claim) against your spouse or civil partner’s pension. This is most likely in cases where the overall pension is small – which makes a pension sharing order expensive/disproportionate, or where one of you has a more pressing need for other assets, such as a home.
Cash Equivalent Value
It is necessary on divorce or dissolution for everyone to provide an updated valuation of all of their pension arrangements. This is called a CE (cash equivalent) value.
Where a pension is not in payment, then the member is entitled to one free valuation per year. If the pension is in payment then it may be that a fee is payable to obtain an updated CE value.
We understand that shared pensions can be a complicated matter and you may have questions and worries that you’d like to discuss. Please contact us for more information.