Divorce and pension sharing for public sector employee is a complex but crucial process — yet many couples overlook it. A recent survey by Which? found that 71% of divorcing couples failed to address pension sharing, a mistake that can lead to serious long-term financial consequences.
Such an alarming oversight is particularly concerning because public sector pensions are often among the most valuable marital assets. With complex rules and the potential for substantial future payouts, failing to properly consider pension sharing for public sector employees can leave one party at a severe financial disadvantage post-divorce.
In this blog, we will discuss the ins and outs of divorce and pension sharing for public sector employees, outline how Pension Sharing Orders work, the challenges associated with pension sharing, and more.
What Are Public Sector Pensions?
What are public sector pensions? They are workplace schemes catered specifically to employees in the public sector. Traditionally, these schemes were based on your final salary pre–retirement. However, in 2015 this changed to a ‘career average’ basis, where your pension pot is calculated based on average earnings throughout your time in the sector.
This shift was not without controversies as, in some cases, people would receive lower pension pots than expected. This is particularly true for any employees who may have started at entry-level but received significant promotions and pay-rises.
It’s important to note that, depending on when an employee started work, they may have benefits based on career average OR final salary, or in some circumstances, both.
If you work or have worked in any of the following fields, you should have a public sector pension:
- Employed in a governmental role
- Worked in the NHS
- Civil servant
- Teacher
- Emergency service workers
How do Public Sector Pensions Compare to Private?
How do public sector pensions compare to private pensions? The key difference lies in security. Public sector pensions are government-backed, offering greater stability for retirement income. In contrast, private pensions are tied to market performance, making them less predictable and more vulnerable to market fluctuations. This distinction can significantly affect long-term financial security for retirees.
Another key difference comes in the expected employer contributions. Public sector pensions usually have a higher rate of employer contributions. Where previously the rate of contribution would be based on salary band, ranking from 26.6% to 30.3%, this rate has now been standardised, and every public sector employee receives a contribution of 28.97%, regardless of how much they earn.
Do I Have to Share My Pension When I Divorce?
Do I have to share my pension when I divorce? Under UK law, pensions must be considered during divorce settlements. In many cases, the court may issue a Pension Sharing Order (PSO), allowing a portion of the pension to be transferred to the ex-spouse, or used to create a new pot for their use.
Pension sharing in public sector divorces generally follows the same legal framework as private sector cases. Since public sector pensions are often valuable assets, usually the second largest after the family home, it’s important to ensure they are carefully considered during the separation process.
How Do Pension Sharing Orders Work?
To initiate a Pension Sharing Order (PSO), the court must first value the pension. Once the asset’s value has been assessed, the court will decide on a fair percentage share for each party. This amount will vary depending on a number of factors, including marriage length, each party’s financial capabilities, and the other assets involved in the settlement.
The process of applying for a pension sharing order is a complex one. It will require extremely careful handling if you wish to ensure that your rights are protected. If you are asking “how do pension sharing orders work”, here is a step-by-step guide to help you understand the process:
- Legal Advice: You should begin the process by consulting with a specialist family law solicitors who can provide bespoke and detailed advice based on your circumstances and needs.
- Financial Disclosure: Both parties are required to fully disclose the extent of their assets to each other and the court. This should include all pension schemes.
- Pension Valued: An up-to-date valuation of the pension pots involved will be required.
- Negotiation: Your solicitor will oversee the negotiation as to how pensions should be split. This can occur via direct discussions, mediation, or part of court agreements if the separation is acrimonious.
- Application to the Court: If an agreement is reached, your solicitor will draft a consent order (including the PSO), and submit it to the court for approval.
- If an agreement cannot be reached, a financial order will be required. This will require the decision regarding how the pensions are split be left to the court.
- Order Served: Upon being issued by the court, the PSO must be served to the pension provider. They are then required to implement the terms of the order within a specified timeframe (usually around four months from the PSO being first received).
Challenges of Pension Sharing for Public Sector Employees
Pension sharing for public sector employees during divorce presents unique challenges due to two key factors: the high value of these pensions and the complex rules that govern them. These factors make accurate valuation difficult and can lead to disputes during the settlement process.
Pension sharing for public sector employees in the UK comes with a specific set of challenges due to the unique structure of these schemes. Here are some of these key challenges:
- Difficult to Value: Public sector pensions are primarily defined benefit schemes (as outlined above). This makes their valuation significantly more complex. As a result, the Cash Equivalent Transfer Value (CETV) will not always reflect their true long-term value — leading to potential disputes.
- Scheme-Specific Rules: Each public sector pension scheme will have its own unique rules. These rules affect how pension sharing can be implemented.
- Early Retirement Reductions: Many public sector pensions offer early retirement options. However, divorce and pension sharing will likely significantly reduce or even eliminate these options, leaving the employee with less flexibility.
- Administrative Complexities: The process of obtaining and implementing a PSO can be time-consuming and will likely require expert legal and financial advice.
- Emotional Stress: Divorce is already an emotionally difficult time. And the added complexities of fair division of a valuable public section will only increase stress and uncertainty.
This selection of challenges only highlights the importance of seeking trusted professional advice when navigating the process of divorce and pension sharing for public sector employees.
Why Legal Advice is Crucial for Pension Sharing for Public Sector Employees
Solicitors play a vital role in navigating the many complexities that come with divorce and pension sharing for public sector employees. Without expert legal advice from a specialist solicitor, individuals risk undervaluing their pension or agreeing to a settlement that could jeopardise their long-term financial security.
This security is particularly important for women, who are statistically more likely to accept not splitting the pension during divorce, potentially leaving them at a significant financial disadvantage. Research initiated by Legal & General found that 31% of women over 50, an age group where pension considerations should be paramount, chose to waive their rights to their partner’s pension during divorce settlement.
Secure Your Financial Future with Expert Legal Advice
Navigating pension sharing for public sector employees during divorce is complex — but too important to overlook. With public sector pensions often among the most valuable marital assets in a separation failing to properly address them will likely result in significant long-term financial consequences.
Whether you are navigating scheme-specific rules, ensuring accurate valuations, or implementing a Pension Sharing Order, expert legal advice is essential to achieving a fair outcome.
At WHN Solicitors, our specialist family law team understands the unique challenges that come with public sector pensions. Our team is here to guide you every step of the way. Contact us today for tailored advice and support. Let us help you secure the fair settlement you deserve.
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.
