Pensions on divorce – frequently asked questions  

Pensions are often one of the most valuable assets after the family home and should not be overlooked during divorce or the dissolution of a civil partnership. Failing to consider them properly can have significant financial consequences, particularly in retirement.

Associate Jade Mercer answers some of the most frequently asked questions about pensions on divorce.

Can I claim a share of my partner’s pension?

Yes. Pensions are treated as matrimonial assets and can be taken into account when reaching a financial settlement.

Why is it important to consider pensions?

A pension provides income in later life and can be a key source of financial security when you stop working. In many relationships, the higher earner may have built up a substantial pension, while the other spouse or civil partner may have contributed less due to having other responsibilities such as childcare. Ignoring pension assets can therefore lead to an unfair outcome and financial difficulties in the future for the person who has earnt less during the marriage.

What are the different types of pensions?

State Pension

Most people qualify for a State Pension through National Insurance contributions. At least 10 qualifying years are needed to receive any entitlement, while 35 years are generally required for the full amount. Currently the full state pension is only £12,547.60 per a year.  You are not able to claim a state pension until you have reached a certain age. This will depend upon when you were born. Even if you are entitled to full state pension, this is unlikely to be enough to live on depending on your standard of living. This is why pension sharing should not be overlooked. Generally state pensions cannot be shared upon divorce or dissolution.

Workplace Pensions

Defined Contribution Pension

Both you and your employer make contributions, which are invested on your behalf. The value of the pension depends on the amount contributed and the performance of those investments.

Defined Benefit Pension

Also known as a final salary pension, this type provides a guaranteed income in retirement based on earnings and length of service. Examples include many public sector schemes such as NHS and Teachers’ pensions.

Personal Pensions

These are private pension arrangements set up and managed by individuals, such as Self-Invested Personal Pensions (SIPPs).

How are pensions valued?

Every pension has a Cash Equivalent Value (CEV), which estimates its capital value. Current valuations should always be obtained during the disclosure stage of financial proceedings, and updates may also be required, as pension values can fluctuate significantly over time.  

For pensions worth more than £100,000, or where defined benefit or public sector schemes are involved, specialist pension advice is often required. A pension on divorce expert can assess the true value of the benefits and advise on the most appropriate method of division.

How can pensions be divided?

Pension Sharing Order

This is the most common approach. A pension sharing order involves transferring a percentage of one spouse or civil partner’s pension rights to the other spouse or civil partner who receives the pension credit.  The spouse or civil partner who receives the pension credit sometimes will have the option to choose either an internal or external transfer (keeping the pension with the same scheme or transferring their share to another scheme).  This ensures that the spouse or civil partner receiving the pension credit has pension benefits of their own right, completely independent from the other party.  The pension share will be implemented after the divorce or dissolution final order is granted. 

Pension Attachment Order (Earmarking)

This less common option directs a pension provider to pay part of the member’s pension benefits to their former spouse or civil partner, leaving the recipient dependent on the member’s retirement decisions.  

Pension Compensation Order

These orders apply to compensation paid by the Pension Protection Fund and allow the compensation to be shared or attached.

Offsetting

One party may retain a larger share of other assets, such as the family home, while the other keeps a larger share of the pension. This is referred to as pension “offsetting”. Specialist advice should be obtained to ensure any offsetting calculation is fair.  

Key steps to take

Obtain details and up-to-date valuations of all pension arrangements, seek legal advice before agreeing any settlement and consider whether a pension expert should be instructed. Most importantly, ensure pensions are included in discussions from the outset so that any settlement provides long-term financial security for both parties.

How Pinney Talfourd can help

If you are contemplating divorce or dissolution and negotiating a financial settlement, our experienced Family solicitors can advise you on your options, work alongside pension on divorce experts where appropriate and help you to achieve a fair outcome.

Contact your local office today on 0800 011 1195 to book a free 45-minute consultation.