If you’re going through a divorce, what happens to your and your partner’s accumulated pension benefits is an important consideration.
When and how pensions are divided on divorce depends on the circumstances of you and your family. If your marriage has been short and both of you are in your twenties or thirties, then your pensions may not need to be divided formally at all, although their value may still be taken into account in other ways. If you and your partner are in your fifties, pensions are likely to play a far more central part in your negotiations or the decision a court has to make.
There are different types of pension, and each of them has different rules. In other words, they work in different ways, but with the overall objective of providing income and possibly a lump sum on retirement.
Pensions need to be seen as part of the overall financial package. Each of you needs an income in the short and long term, and each of you will need somewhere to live. Sometimes it is possible for one person to keep more of the housing capital, instead of sharing a pension. On retirement, that person can “downsize” – in other words sell the house, buy somewhere smaller and release capital that can then produce an income. Swapping all or some of your pension entitlement for other assets is often called “offsetting”.
Pension sharing orders
On divorce most pensions can be divided by a court order, through what is called a pension sharing order. There needs to be a final divorce (decree absolute) and a formal court order for a pension sharing order to take effect. However, that order can be one that is made by the court by agreement as part of a negotiated settlement.
If you are the person with the pension, a pension sharing order results in a percentage (not a specified amount of money) being transferred from your pension into a separate pension in the name of your spouse. Your spouse will then be entitled to the benefits of that pension completely independently of you. Those rights will not be affected, for example, by your death.
In most cases, the value that you receive as a result of the pension sharing order will be moved out of your former partner’s scheme and reinvested in your own new pension. The alternative, which applies more commonly with public sector schemes like the police, civil service and the NHS, is for you to have your own “ex-spouse” fund within the existing scheme, but you will still be able to draw on that independently.
There are different ways to make sure that pensions are dealt with fairly on divorce. Sometimes it will be appropriate to equally divide the capital value of the pension (called the transfer value). Often, particularly if you and your partner are nearing retirement, however, a calculation will be made that is aimed at trying to produce equality of income from the pension on retirement.
Sometimes it will be more appropriate to give one of you more of the other assets instead of making a pension sharing order (offsetting).
Advice is crucial as so much depends not only on the type of pension involved and what it can generate in cash and regular income, but also on the other details of your situation.
At Dawn Slater Wealth Management, we are experts on pension and divorce. We deal with a large number of clients who are going through, or have gone through, divorce, providing them, with advice and guidance along the way, as well as assisting their solicitors with the technical detail where required.
We try to avoid jargon and we keep it simple so that you understand exactly what we are doing and why we are doing it. If you would like to work with a professional and friendly team that are here to ensure that your money works for you get in touch today on 01635 551926 to find out more.
We would like to say that 'Until 2004 we managed our own investments but then saw in a daily newspaper that Dawn was 2nd in a competition for the UK's best female financial advisor. She was based near us and we went for an initial meeting where we found her very straightforward and informative. She has invested since in areas far beyond our limited expertise and has increased our portfolio and managed it to our entire satisfaction. We are worry free, trust her implicitly and it was the best financial decision we ever made. We are able to keep in good contact with her and we look on her as a friend as much as an advisor. We would feel genuinely lost without her.
Dawn started looking after my pension around 1990. A target was set for each year and I was supplied with an annual detailed review showing progress. She has always made herself available either on the phone, in person, or by email if there were any queries or just to chat about the overall state of play. I followed Dawn’s instructions over the years with the result that by 2012 pension funds had grown to target and I was able to take the pension earlier than predicted and it allowed me to work part-time. I value Dawn’s advice and she continues to steer my savings. Without her I feel I would not have had such a good result.
Thanks to Dawn Slater's invaluable, dedicated and totally reliable advice over several years I can quite simply say that I am more than happy to continue relying upon Dawn Slater Wealth Management to advise and invest for me.