When marriages end through divorce or civil partnership dissolution in the UK, pensions often represent one of the most valuable matrimonial assets — sometimes exceeding even the family home in value. Despite this, pension assets are frequently overlooked during financial settlements — which can prove to be a costly mistake.
Research by the Pensions Policy Institute revealed that divorced women typically have just 30% of the pension wealth of divorced men, highlighting the critical importance of properly addressing pension sharing in divorce proceedings.
This comprehensive guide explains what pension sharing is, how pension sharing works, which are eligible to be shared, and the essential considerations for anybody navigating this complex aspect of divorce financial settlements.
What is Pension Sharing?
Pension sharing is the legal mechanism established by the Welfare Reform and Pensions Act 1999, whereby divorcing couples are able to divide pension assets as part of their financial settlement. It allows for a percentage of one party’s pension to be transferred to the other, creating a separate and independent pension entitlement — ensuring both parties benefit post-separation.
Pension sharing is ideal as it provides a clean break settlement regarding these pension assets, allowing both parties to move forward with maximum financial independence and minimal confusion regarding their eventual retirement fund.
How Does Pension Sharing Work?
Understanding how pension sharing works is essential for anybody going through a divorce. While the actual process will vary depending on the unique circumstances of your separation, it will generally follow some key, consistent steps:
- Legal Advice: Begin by consulting with a solicitor specialising in family law. An expert will be able to provide you with detailed advice tailored to your specific circumstances and help you better understand your legal rights and options regarding pension sharing.
- Financial Disclosure: Both parties in a divorce are required to fully disclose their financial assets to each other and the court. This includes all pension schemes therein and whether they are private/workplace/state pensions. Full transparency during disclosure is legally required.
- Pension Valuation: Obtaining an accurate and up-to-date valuation of all pension pots is vital. The valuation will be done as a Cash Equivalent Transfer Value (CETV).
- Negotiation and Agreement: With support from your solicitor, you should negotiate how the pensions will be divided. This can be a result of direct discussions, mediation, or court proceedings (if an agreement cannot be reached amicably).
- Court Application: Once an agreement has been reached, your solicitor will draft a consent order, which will include the Pension Sharing Order, and submit it to the court for approval. If an agreement was not reached, an application for a financial order will be required; whereby the court will decide on the pension division terms.
- Implementation: Once approval is granted, the pension provider will receive the order. They will have four months to implement the division. The recipient, or transferee, will receive their share as a pension credit — which can then be transferred into an existing pension scheme, used to join the same scheme (if allowed). Or transferred to a brand new pension pot.
The clean break approach of pension sharing in divorce means that each party will have full control over their own pension assets, meaning they can make independent decisions when it comes to their retirement and will not need approval from their former spouse.
Which Pensions can be Shared?
A common question asked during divorce proceedings is: “which pensions can be shared?” Almost all pension types, including occupational, personal, and public sector pensions can be subject to pension sharing orders. The pensions that can be shared include:
- Occupational pension schemes (both defined benefit and defined contribution)
- Personal pensions and Self-Invested Personal Pensions (SIPPs)
- Most public sector pensions (NHS, teachers, civil service, police, armed forces)
- Executive pension schemes and Small Self-Administered Schemes (SSAS)
However, it’s important to note that the basic State Pension cannot be shared through a pension sharing order. Understanding which pensions can be shared is crucial when planning your financial settlement.
Factors Affecting Pension Division
When determining how pension assets should be divided through a pension sharing order, courts and solicitors will consider several key factors, including the duration of the marriage, the contributions to the family unit, and financial positions. Factors affecting pension sharing in divorce include:
- Marriage Duration: Typically, the longer the marriage, the more equal the division of pension assets will be.
- Age Difference: If one party is much older than the other, meaning there is a disparity between the relative time each party has to rebuild retirement provisions, this will be considered.
- Pension Accrual Period: The period where the pension was built up — whether it was pre-marriage, during the relationship, or post-separation, is highly relevant.
- Financial Resources: The level of assets and income for each party.
- Retirement Needs: The projected financial requirements of each party upon retirement.
- Family Contributions: Non-financial contributions such as childcare and homemaking are usually viewed as equally important as financial commitments made.
- Health Considerations: Any medical conditions that may affect future earning capacity or life expectancy post-separation.
The purpose of these factors is to help ensure that pension sharing arrangements are both fair and appropriate to each party’s unique situation — while recognising both financial and non-financial contributions made to the marriage and family dynamic.
Alternatives to Pension Sharing in Divorce
While understanding what pension sharing is, and how it works, is important, it’s equally valuable to know the alternatives that could be more suitable to your circumstances:
Pension Offsetting
Pension offsetting involves balancing pension benefits against other matrimonial assets. For example, one spouse may be allowed to retain their pension fully intact, in exchange for the other receiving a larger share of the family home or another high-value asset/assets.
While often simpler to arrange than pension sharing, offsetting does require extremely careful valuation to ensure fairness — as it is very difficult to accurately compare the value of property today with future pension income.
Pension Attachment Orders (formerly Pension Earmarking)
Formerly known as pension earmarking, this arrangement allows for a portion of one party’s pension to go to the other when the pension pot comes into payment.
Unlike pension sharing (and offsetting), this process will not create a clean break, as the person benefitting will need to wait for the pension holder to actively draw their pension.
What Happens to a Pension Sharing Order on Death?
The impact of death on pension sharing arrangements is an important consideration that is often overlooked. However, the consequences will depend on when the death occurs in the process, and which party dies:
Death Before the Pension Sharing Order is Implemented
If either party were to die before the divorce is completed and the pension sharing order is implemented:
- Divorce proceedings automatically terminate.
- The pension sharing order can no longer be implemented.
- The surviving spouse may only have some rights to the deceased person’s pension.
These rights will typically supersede any provisions contained within a draft pension sharing order.
Death of the Pension Holder After Implementation
If the pension holder were to die after the pension sharing order has been implemented:
- The ex-spouse’s pension credit will remain unaffected as, by this point, it will have already been legally transferred.
- The pension credit will continue as the ex-spouse’s independent pension provision.
Death of the Pension Credit Recipient After Implementation
If the spouse who received the pension credit dies after its implementation:
- Their pension credit will be treated according to the specific rules of their pension scheme.
- Depending on their scheme, benefits may be payable to their estate or nominated beneficiaries.
- The original pension holder will have no claim on these benefits unless specifically stated.
Securing Your Financial Future Through Pension Sharing
Pension sharing in divorce provides a valuable mechanism for achieving financial fairness between separating couples. Understanding what pension sharing is, how pension sharing works, and which pensions can be shared is essential for protecting your financial future following relationship breakdown.
The complexity of pension arrangements demands careful consideration and expert advice to ensure that both parties can secure their long-term financial wellbeing and retirement security.
If you’re facing divorce and have concerns about your financial future, the experienced family law team at WHN Solicitors can guide you through every aspect of pension sharing in divorce. We are on hand to ensure that your rights are protected, and that you achieve the fairest settlement possible — one that properly accounts for all matrimonial assets, including pensions.
Contact David Connor at [david.connor@whnsolicitors.co.uk] & [01706 232039], or get in touch with Stephen Pinnington at [stephen.pinnington@whnsolicitors.co.uk] & [0161 761 8079] for expert support.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. For guidance tailored to your specific circumstances, please contact our family law team to arrange a consultation.
