Pension Sharing Orders: A Comprehensive Guide for Couples
In this article, you'll learn how you can use a pension sharing order to split your pension funds as part of a divorce settlement.
Last Updated:October 22nd 2024 Table Of Contents
Divorce is a complex and often emotionally charged process, with numerous financial considerations to navigate. Among these considerations, pensions hold significant importance, often representing a substantial portion of a couple’s assets.
In the UK, the division of pensions during divorce proceedings is governed by specific rules and regulations aimed at ensuring fair outcomes for both parties involved.
Understanding the nuances of pension sharing orders is essential for couples navigating the intricate terrain of divorce settlements.
Pension assets, alongside property, savings, and investments, constitute the pool of marital assets subject to division upon divorce.
Establishing the value of pensions within this context is crucial for achieving an equitable financial settlement in divorce that upholds the financial interests of both parties involved.
What is a pension sharing order?
A pension sharing order is a UK legal mechanism that divides pensions between divorcing spouses, ensuring each party receives a fair portion of pension assets accumulated during the marriage.
This order enables a clean break, transferring a percentage of one spouse’s pension into the other’s name to create individual pension funds.
The process begins with a court order specifying the division percentage or amount. Upon approval, the pension provider divides the pension, providing both spouses with independent financial security post-divorce.
To formalise this division, couples must complete their divorce or dissolve a civil partnership before applying for the court order.
Complications, such as accurately valuing complex pensions or errors in the division process, may arise. Legal guidance is recommended to ensure correct implementation and prevent delays or losses.
Why is a pension sharing order important after divorce?
A pension sharing order holds significant importance after divorce, primarily because it ensures financial stability for both parties in their retirement years.
Divorce can often lead to an imbalance in pension provision, with one spouse having a significantly larger or more secure pension than the other.
A pension sharing order rectifies this disparity by ensuring a fair and equitable distribution of pension assets.
Additionally, a divorce pension share order provides certainty and avoids future financial disputes.
By obtaining a court-approved consent order, both parties have a clear understanding of their entitlements and can plan their retirement accordingly. This eliminates any ambiguity or potential for disagreements down the line.
If you don’t have legal representation, it can be difficult to understand the process involved – here’s a breakdown of how to implement a pension sharing order.
Quick question
Can I take a lump sum from a pension sharing order?
No, a pension sharing order does not allow for the immediate withdrawal of a lump sum from the pension being shared. Instead, it transfers a portion of the pension into the other spouse’s name, which then becomes their individual pension fund.
What happens if a pensions sharing order is not implemented?
Failure to implement a pension sharing order can have severe consequences. If the pension provider fails to divide the pension as instructed by the court order, it can lead to financial loss for the receiving spouse.
In such cases, legal action can be taken to enforce the order and seek compensation for any losses incurred.
We can’t agree, can the court help?
In cases where couples cannot reach an agreement on their own, the family court serves as the ultimate arbiter, tasked with determining fair and equitable solutions regarding the division of assets, including pensions.
Dealing with the family court process requires careful consideration of legal obligations and strategic advocacy. It’s not recommended for any party to deal with the court process without legal assistance.
What is the p1 form and do I need to complete it?
The P1 form is a mandatory document used to notify pension providers of the court’s decision regarding pension sharing.
Completing this form accurately and promptly is essential for facilitating the implementation of the pension sharing order and ensuring seamless transition of assets.
Can you get a pension share after the decree absolute?
What other options are available for splitting pensions?
“How is a pension split in divorce?” is a common question among divorcing couples in the UK.
When a marriage ends and divorce proceedings are initiated there are various options available for handling pension assets, each carrying specific implications for future financial security.
The pension arrangements you decide on may include retaining the pension in its current form, transferring it to another scheme, or opting for pension sharing.
Pension sharing is the most common way of sharing pension funds with a former spouse or civil partner following a divorce, but there are two alternative options, known as pension attachment and pension offsetting.
Pension Attachment Order / Earmarking Order
Earmarking pensions, often referred to simply as ‘earmarking,’ is a mechanism by which a portion of one spouse’s pension assets is allocated to the other spouse as part of a divorce settlement.
In earmarking, the court orders that a specific percentage or amount of the pension benefits be paid to the former spouse upon retirement or another specified event.
Attachment of pension payments is made from the pension fund at source rather than from the fund holder in either regular payments, a lump sum, or a combination of both.
Pension Offsetting Order
A Pension Offsetting Order in divorce provides a clean break between all parties as the value of one spouse’s pension is exchanged, or offset, against other assets of similar value.
So in practice, instead of giving up a portion of their pension, a husband can instead waive the equivalent value of their share of the marital home.
Whether it is right to share your pensions and how you decide to share them will depend on the individual circumstances of your case.
Pensions are just one part of the overall ‘matrimonial pot’, alongside other assets, such as property, savings, business interests, investments, and valuables for example that need to be considered before agreeing to a financial settlement.
Which pension schemes allow pension sharing?
| Pension scheme | Can be shared? |
|---|---|
| Occupational pension schemes (including AVCs) | |
| Personal pension schemes | |
| Stakeholder pension schemes | |
| Section 32 policies (Buyout policy or Deferred annuity plan) | |
| Retirement annuity contracts | |
| Statutory pension schemes | |
| Free-standing AVCs | |
| Employer financed retirement benefit schemes – unapproved schemes | |
| Contracted-out benefits, State Second Pension (S2P), State Earnings Related Pension (SERPS) and the protected payment part of the new State Pension | |
| Pensions in payment from any of the above | |
| Schemes in which the only benefits are equivalent pension benefits | |
| Basic State Pension | |
| New State Pension | |
| Pensions the member is receiving as a spouse, civil partner or dependant | |
| Pensions already subject to an earmarking or sharing order |
Who pays the fees for a pension sharing order?
The responsibility for paying the fees associated with a pension sharing order can vary depending on the circumstances. In some cases, the court may order one party to pay the fees, while in others, the fees may be shared equally or paid separately.
The fees involved with pension sharing are typically paid by the pension fund member (the person sharing the pension).
It is essential to discuss the financial implications and responsibilities with your solicitor before proceeding with the application.
They can provide guidance on the likely cost and help negotiate a fair arrangement, taking into account the financial resources of both parties.
Pension compensation orders: an alternative to pension sharing orders
In some cases, a pension compensation sharing order may be considered as an alternative to a pension sharing order.
This order applies when one party has accrued pension benefits as compensation for injuries or illness suffered during the marriage.
Unlike a pension sharing order, which divides the pension assets, a pension compensation sharing order awards a percentage of the compensation element of the pension.
This ensures that the injured party retains their full compensation entitlement while providing a fair share to the other spouse.
Key points to understand about pension sharing
- A pension sharing order is usually made when the assets and income of the parties are not sufficient to provide an adequate financial settlement for both parties.
- The PSO instructs the pension providers of a fund to transfer a percentage of the transfer value (anything up to 100%) to the party who is to benefit from the order.
- Any order to share pensions must offer a percentage of the pension, not a fixed amount as the value can fluctuate.
- Not all pensions can be shared – View our table below to find out which pensions can and cannot be shared using this mechanism.
- The fees to share pensions can be excessive – High-street solicitors will often charge £2500+ to help you implement this order. Read about our service for £799 fixed fee.
- The court will expect the fund member to request a valuation of the pension benefits, known as a Cash Equivalent Transfer Value (CETV), at the date of petitioning for divorce. If a CETV has been provided within the previous 12 months this will be accepted.
- The provider of the pension scheme must supply the CETV within 3 months.
- The pension provider has 3 weeks from receipt of the order to appeal.
- Pension scheme providers can pass on the costs of implementing pension-sharing orders to the divorcing couple.
- Divorce lawyers are not regulated, qualified, or insured to give financial
When Is Pension Sharing a Good Idea?
In England and Wales, pension sharing can only take place by court order and only upon divorce or dissolution – therefore it’s not an option for unmarried couples. Pension sharing is unaffected by the remarriage or death of an ex-spouse and could be a good option if:
- One spouse has a high value of pensions compared to other assets
- You are close to retirement age and unlikely to build your own pension pot
- You wish to take benefits from the pension credit from 50+, rather than waiting until your ex retires
- You want to nominate potential beneficiaries of death benefits if you die before taking retirement benefits
Pension sharing offers a clean break and generally provides greater flexibility to the divorcing couple and the courts ensure there’s a fair settlement.
However, this option might not be the best choice for those individuals who already have an adequate pension of their own.
Furthermore, pension sharing is not always your best option if retaining the family home is a priority. Pension sharing could lead to you having to share other assets, including property, then the family home may have to be sold.
I’ve been awarded a share of my ex-partner’s pension, what should I do?
The first thing you should do is gather all the necessary information about the pension scheme. This includes finding out the name of the scheme, the pension provider, and the value of the pension.
You should also obtain a copy of the PSO document, as it will outline the specific details of the share you have been awarded.
Next, it is crucial to seek professional advice from a financial adviser or a pension specialist. They will be able to guide you through the process and help you understand the implications of the order.
They can also assist you in evaluating the options available to you, such as whether to transfer your share into a separate pension scheme or keep it within the existing scheme.
Tips to make the process more manageable:
It’s worth noting that the process of sharing pensions can be made more manageable by taking some proactive steps before the pension-sharing order is made.
For instance, writing to the pension provider at an early stage to obtain the information required to implement the order. Or contacting the provider with a draft copy of the order to seek their comments.
Additionally, considering who will pay the pension sharing fees, if any, and who will send the documentation to the pension provider is crucial.
This should be specified in the financial order, setting out the financial settlement, to avoid any disagreements or confusion down the line.
Dealing with your pensions as part of a divorce is not something most people should do themselves.
It’s important to seek professional advice throughout the process to ensure that the pension sharing order is implemented correctly and that both parties receive their entitlements fairly.
Speak to one of our friendly team by calling us for a free consultation or chat with us on Live Chat for quick and reliable answers.
Glossary of Key Related Terms
- Pension Sharing Annex: A pension sharing annex is a legal document that outlines the specifics of how a pension is to be divided between divorcing spouses. It accompanies the overall divorce settlement and provides detailed instructions for the implementation of the pension sharing order.
- Pension Debit: A pension debit refers to the reduction in one spouse’s pension benefits resulting from a pension sharing order. It represents the portion of the pension transferred to the other spouse as specified by the court.
- Pension Administrator: The pension administrator is the entity responsible for managing a pension scheme and overseeing tasks such as contributions, investments, and distributions. During divorce proceedings, pension administrators play a crucial role in implementing pension sharing orders.
- Pension Contribution: Pension contributions are the payments made by individuals and/or their employers into a pension scheme, which accumulate over time to fund retirement benefits.
- Pension Transfer: A pension transfer involves moving pension benefits from one scheme to another, often undertaken to consolidate pensions or take advantage of better terms or investment opportunities.
Common Questions on Pension Sharing
Is pension sharing compulsory?
Pension sharing is not compulsory, but it has become a standard practice since its introduction in December 2000.
This is often referred to as pension sharing on divorce, the new procedure.
Divorcing couples must decide how to include the value of their pensions in the financial settlement, and pension sharing is one of the three available options.
When is the money transferred?
A pension sharing order cannot take effect until the divorce or dissolution procedure is finalised and the decree absolute or final order is granted.
Once this happens, the pension provider has four months to implement the pension credit transfer.
Will the pension provider charge me?
Yes, the pension provider may charge fees for implementing the pension sharing order.
They should provide information about the associated charges within 21 days of receiving the order.
Be aware that the fees for implementing a PSO can be significant and they are usually paid by the person who is sharing their pension funds.
Share Your Pensions Without Spending Thousands
If you have negotiated a financial settlement with your ex-partner and require a legally binding court order drafted to finalise it, we have an affordable service that is ideal for you.
Typically speaking, high-street solicitors charge between £1500 – £3000 + VAT to draft a pension sharing order.
If you would prefer a service without the unnecessary bureaucracy that usually comes with local solicitors alongside an affordable fee, then view our service below for more information.
Consent orders play a pivotal role in formalising divorce settlements, including agreements related to pension sharing.
These legally binding documents outline the terms of the settlement, providing clarity and security for both parties involved.
Solicitor Drafted Pension Sharing Order
This service is ideal for couples who want to separate their pension assets through a consent order. Our solicitors will draft the order according to your individual circumstances and support you through its implementation.
This post was written by Mark Keenan. Managing Director of Online Legal Services Ltd. Mark has been writing about divorce and related subjects for over 20+ years and is an expert in legal marketing.
