In divorce or dissolution, the pension can be the biggest asset after the family home. You can split pensions several ways, so it’s worth understanding the options before deciding what’s best for you.
Pensions you can divide
Start by listing all the different pensions you and your ex-partner have, and get a copy of the rules for each scheme.
This could include:
- personal pension schemes (includes Stakeholder and Self Invested Personal Pensions)
- schemes you have through work
- any part of your entitlement to the new State Pension that is ‘protected’ and built up under the old pre-April 2016 Additional State Pension not the basic entitlement to new State Pension).
What exactly can be divided depends on where in the UK you’re divorcing or dissolving your civil partnership.
In England, Wales or Northern Ireland
The total value of the pensions you have each built up is taken into account.
This doesn’t mean only the pensions that you or your ex-partner built up while you were married or in a civil partnership, but all of your private or workplace pensions.
Only the value of the pensions you have both built up during your marriage or civil partnership is taken into account.
This means that anything built up after your ‘date of separation’ or before you married or became civil partners doesn’t count.
How you can split pensions
This table shows how workplace, personal and other private pensions can be divided.
The rules of the pension scheme will help inform you which of these options will work best for you.
Get professional advice from a solicitor or a financial adviser before you act.
||What is it?
|Pension sharing order
||You get a percentage share of any one (or more) of your ex-partner’s pensions.
This is either transferred into a pension in your name or you can join your ex-partner’s pension scheme.It will depend on the pension scheme rules as to which method they allow.
If the pension is transferred to you and you don’t already have your own pension, you’ll have to set one up.
||The value of any pensions is offset against other assets.
For example, you might get a bigger share of the family home in return for your ex-partner keeping their pension.
Deferred pension sharing
(not available in Scotland)
|This is used if your ex-partner’s pension is being shared. They have already retired and are receiving their pension, but you haven’t retired and are too young to be paid a pension.
You both make an agreement to share the pension at a later date. This can be more complicated to arrange than an ordinary pension sharing order, so legal costs can be higher.
Deferred lump sum
(not available in Scotland)
|You get a lump sum payment from your ex-partner’s pension when they retire.
Pensions attachment order
(called ‘pensions earmarking’ in Scotland)
|You get some of your ex-partner’s pension when it starts being paid to them.
You can get some of the pension income, the lump sum or both. But you can’t get pension payments before your ex-partner has started taking their pension.
It’s not compulsory to share pensions in a divorce. As a couple you can come to an informal agreement, but it will need to be legally documented. It’s recommended that you seek financial and legal advice if you decide to take this option.
Splitting your pension after you’ve retired
If you and/or your ex-partner have retired, the pensions can still be split, but the rules are different.
It isn’t possible to take a lump sum from your ex-partner’s pension if they are already receiving an income from it.
This applies whether your ex-partner took a lump sum or not.
Do you need a court order?
Only a court can make a:
- pensions sharing order
- pensions attachment or earmarking order
You and your ex-partner can agree to offset your pension without a court order.
You and your ex-partner can ask the court to approve an individual agreement and turn it into a court order.
You should get advice from a family lawyer who specialises in pensions in divorce or dissolution as the rules are complicated.
Get help from The Pensions Advisory Service
If you’re thinking about getting divorced and you’re confused about what this might mean for your pension, The Pensions Advisory Service (TPAS) has a free service to review your options by phone.
To find out more and book your free appointment to speak to someone, visit the TPAS website.
TPAS offers a Pensions and Divorce Guidance session for anyone who’s about to start divorce proceedings. It explains the options and the process to you. If you’d like a Pensions and Divorce Guidance session, email their booking service on email@example.com.
Find out the value of your pension
Only the person who is a member of the pension scheme, or who has taken out the pension, can ask for a valuation.
In divorce or dissolution, pensions are valued using the ‘cash equivalent transfer value’.
This is the amount you’d get if you moved your pension elsewhere.
It might be less than the ‘fund value’ of your pension because it will include charges for transferring.
How you find out the value of your pension depends on where in the UK you’re divorcing or dissolving your civil partnership.
In England, Wales or Northern Ireland
Ask your pension provider for a statement that will give you the cash equivalent transfer value for divorce purposes.
The annual statement is a good starting point, plus it’s free.
You can do this if you have a workplace ‘defined contribution’ or ‘money purchase’ pension or personal pension, where you pay into a pension pot, rather than your retirement amount being based on your salary.
Your pension must be valued on the ‘date of separation’, and only the value that has built up during your marriage or civil partnership is taken into account.
Ask your pension provider for a statement that will give you the ‘cash equivalent transfer value’ for the pension at the date of separation.
You should also ask them how much of that pension was built up during your marriage or civil partnership.
If you have a final salary or other salary-related pension scheme, getting an accurate valuation might be more complex.
You should still ask your provider if they can give you a cash equivalent transfer value, but be aware that this rarely reflects the true value of these schemes.
This is a complex area and it’s worth getting expert help from an actuary or a financial adviser who specialises in divorce or dissolution.
You’ll have to pay for this, so find out how much it will cost first. You may also need an independent valuation which will increase your costs but may provide a fairer figure.
New State Pension ‘protected payment’
The New State Pension was introduced in April 2016. The amount you get is based on your National Insurance contributions and to be eligible for the full new State Pension you need 35 full ‘qualifying’ years. Entitlement under the New State Pension can’t be split on divorce or dissolution.
However, under the pre-2016 system, if you were employed you built up entitlement to both the old Basic State Pension and an Additional State Pension. The Additional State Pension was based on your earnings as well as the National Insurance Contributions you had made or been credited with. You might have already built up entitlement to an Additional State Pension under the old system that’s greater than the New State Pension. Any amount over the New State Pension is known as the ‘protected payment’ and this amount can be split.
To find out if you have a protected payment and to find out the value of it you will need to apply for a State Pension statement.
You will also need to complete a BR20 form to obtain a valuation of your State Pension for divorce or dissolution purposes.
It’s a good idea to regularly request a State Pension statement so you can see how much State Pension you’ve built up so far.
You can apply for a statement online or by phone or post at GOV.UKopens in new window.
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