Pension Sharing Orders Explained
21 September 2017
When a marriage or civil partnership ends, a pension is often an individual’s most valuable asset acquired throughout the course of the marriage. But what happens to a pension following divorce or the dissolution of a civil partnership?
In some situations you may decide to share a pension pot with your ex, or the Court may order you to do so. The details of the arrangement can then be outlined in a Pension Sharing Order, which is issued by the Court.
What is a Pension Sharing Order?
A Pension Sharing Order provides that that couples in a marriage or civil partnership can share the benefit of a nominated pension which belongs solely to one person.
This can be beneficial where one person does not have a pension in place, or where there is no other asset of considerable value to distribute, as it will enable the other person to plan for their retirement.
The pension will either be transferred into an existing pension or transferred into a new pension. The amount to be transferred is a specific value determined either by agreement, or by order of the Court, and described as a percentage.
For example, if it is agreed that one person will share £10,000 of a pension worth £100,000, this will then be described as 10% share. The value to be shared is then calculated the day before the transfer is effected, in accordance with the transfer. The Court will consider the overall matrimonial finances, and will endeavour to reach a divorce settlement which is considerate of each person’s circumstances.
Depending on the value of the pension, you may wish to obtain the advice of a financial adviser prior to agreeing a pension share. Sharing a pension can incur a fee, depending on the provider, and it is important to check what the fee is prior to making the agreement. For this reason, some people may find that it is more favourable to find alternative ways to settle the agreed percentage, either by way of giving their ex a lump sum of money, or property adjustment, for example.
Once the pension share has been actioned, there is no further ‘tie’ between the pensions. The pensions are then considered to be independent funds and there will be a clean break between the divorcing couple.
It is important to seek independent advice on the value of the pension fund, particularly if a new fund is set up, to ensure optimum growth of the fund.