A pension is often one of the most valuable assets of a marriage and one which may be divided between separating parties.
There are three possible ways of dealing with pensions on divorce: pension sharing; pension attachment and off-settling.
1. Pension Sharing Orders
The court can make a Pension Sharing Order upon the pronouncement of decree of divorce or nullity or upon the dissolution of a civil partnership (but not in proceedings for judicial separation). Under a Pension Sharing Order, the pension is split and the benefits are divided on a percentage basis between the couple at the time of the divorce so that each then has their own pension into which they can make contributions in the future.
It is usual for the pension credits to be transferred out of the original scheme and into an entirely new pension scheme, although sometimes the pension credit may be transferred into new pension within the existing scheme. Most UK pension schemes can be the subject of a Pension Sharing Order (with the exception of the basic state pension scheme), whether they are already in payment or still accruing. Usually benefits cannot be drawn before the age of 55 but this will depend on the rules of the scheme.
2. Pension Attachment
In certain circumstances (e.g. judicial separation) a Pension Attachment Order may be more appropriate. This is where all or part of a pension or lump sum arising at retirement is ‘earmarked’ for the other spouse. Whilst there are certain advantages to such an arrangement, one significant disadvantage is that no new pension is created in the other spouses own name so if the member spouse dies, the pension does too. Another disadvantage is that the other spouse must also wait until the member spouse takes their pension before receiving their share of the pension which can be problematic if the other spouse is older than the member spouse and reaches retirement first.
3. Offsetting
This is where the other matrimonial assets (such as property or savings) are adjusted in favour of the other spouse in lieu of the pension rights which are retained by the member spouse.
When dealing with the division of pensions, it is usual to obtain a Pension Report from a Pensions Actuary to advise upon the most appropriate way to receive the pension credit. It is also usual to instruct an Independent Financial Advisor specialising in Pensions to advise upon the best way to invest it. We can arrange for such reports to be commissioned and can put you in touch with very experienced Independent Financial Advisors.
