Frequently Asked Questions

Pension sharing is where on divorce the pension assets are split to provide pension rights to each party in their own right.

Once the parties are divorced and the pensions split then the rights belong to each party respectively and a ‘clean break’ is achieved.

Once a pension sharing order becomes effective it cannot be altered or reversed.

Pension sharing applies to divorce proceedings that commenced on or after 1 December 2000, with this being the date on which the petition is lodged with the Court. There is no provision for retrospective settlements.

Pension sharing is not available for legal separation purposes nor cohabitants.

This is no prescribed way in which the pensions must be split, and it is important to remember that the pensions are just another asset of the marriage – but can often be either the largest or second largest asset of the marriage.

The pensions may be split to provide equality of ‘capital value’ or ‘income’, or they may be split to meet a specific financial need.

It may be argued that benefits accrued before the time of cohabitation / marriage or after the date of separation are to be excluded, but this will depend on the circumstances of each case.

There may be an adjustment to allow for the value of other matrimonial assets retained.

There is no right or wrong way – and if the parties cannot agree then the Court will decide.

The question as to whether a pensions report is needed unfortunately is not an easy one to answer, and it is usually something that you will need to consider with your family lawyer.

There are many issues to consider: –

• whether the court feels it is appropriate
• whether the benefits outweigh the cost
• whether it is justified in view of the value of the overall assets
• the types of pensions involved, for example if there are defined benefits held by either party then a report is certainly usually required

The purpose of a report is to assist the parties, and the court, to consider how to fairly divide the pension assets.

As the parties are likely to have a mixture of different pension arrangements the report may need to consider many issues including: –

• how to achieve equality of capital value at the specified retirement age(s)
• how to achieve equality of income at the specified retirement age(s)
• the cost of implementing a pension sharing order
• an appropriate amount to offset the pension benefits either in full or in part
• whether benefits accrued before marriage / cohabitation or after separation should be excluded
• how to achieve a specific income to meet the parties needs
• the effect of the Lifetime Allowance
• identify the earliest that benefits are available
• identify the tax-free cash sum available at retirement
• if any of the pension arrangements contain preferential terms and conditions

Most pensions reports are prepared on a ‘single joint expert’ basis, which means that they are impartial to the parties appointing the expert, and the expert’s duty is to the Court. Because a single joint expert must maintain a neutral stance, they cannot advise either party on specific issues that may affect them personally. They are guided in their assessment by questions submitted by the lawyers for both parties.

A ‘shadow expert’ can be engaged separately to assist one of the parties. This could be appropriate if one party’s pension arrangements have unusual features.

Example

Mrs W’s solicitors asked us as shadow experts to look at the pensions information provided by her ex-husband. We identified he had a beneficial early retirement option available due to his being a member of an earlier pension scheme that was amalgamated into his current arrangements. We helped create a specific question to be put in the letter of instruction to the single joint expert which resulted in the pensions report indicating an additional £140,000 should be made available to Mrs W.

Pension benefits are only one part of the overall assets of the marriage, and are generally not divided in isolation to the other assets.

Once all the financial information has been gathered and exchanged, and this may include a pensions report, a decision must be reached as to how all the assets are to be split to meet the parties’ needs and objectives.

The process you are using - mediation, the collaborative process or the Court process - to achieve an overall financial outcome on your divorce may dictate how you reach an outcome in respect of the pension benefit.

If it is not possible for you to come to a financial agreement by consent then it will be necessary to issue court proceedings, with ultimately a judge making an order.

Whichever method is used – mediation, collaborative or court – it is important to remember that only a court order can achieve the division of pension assets by the awarding of either a pension sharing order or a pension attachment order.

The consent/court order will need to contain the correct provisions for there to be a pension order and be accompanied by the appropriate pension sharing annex(es) or pension attachment annex(es).

If you are self-represented and/or mediating it may be necessary to appoint a family lawyer to assist with the preparation of the necessary documentation.

A pension sharing order must be issued by the court either by way of a court order for a contested case or by a consent order if by agreement.

The order is issued to the trustees/managers by the Court, in England and Wales, but there is evidence that this is not occurring in all cases and so it is good practice for copies to be sent to the scheme directly to ensure that they are aware of its existence and to ensure that the implementation period commences as soon as possible.

The order will be accompanied by an annex to the order that will detail the pension share as a percentage of the member’s cash equivalent transfer value, which may be up to 100%.

There must be a separate annex for each pension arrangement.

A pension sharing order can be applied to pensions that are already in payment, whether by annuity or income drawdown.

If the pension is being paid by way of an annuity, the contract will be unwound and new separate annuities will be created. Alternatively, the ex-spouse receiving the pension credit i.e. transfer value, may choose to remain invested within a suitable pension arrangement and defer annuity purchase.

The regulations provide no clear guidelines on the correct method for valuing a pension in payment. Different product providers/actuaries follow different methods. Therefore, this may to be area where the opinion of a consulting actuary may be felt beneficial.

Medical evidence may be required to prevent selection against the annuity provider.

Sharing an income drawdown plan will be achieved by dividing the drawdown fund between the parties.

Advice issues will include whether or not drawdown remains viable with the new lower drawdown fund for the scheme member.

The former spouse will need to take advice to establish the best method of enjoying income given their own circumstances, fund size, attitude to risk etc. It may be that they should use their share of the fund to purchase an annuity rather than continuing with draw down.

A Pension Sharing Order can be varied before a Conditional Order has been made Final, but an application must be made before the Conditional Order is made Final.  

An application to vary would stop the implementation of the order until the application has been heard and decided.

It is possible to apply for a Pension Sharing Order when maintenance is varied for petitions filed on or after 1st December 2000

If it is not possible for you to come to a financial agreement by consent then it will be necessary to issue court proceedings, with ultimately a judge making an order. It is strongly recommended that professional legal advice is taken to consider the impact of this including the potential cost and timescales.

• help explain the pension report, if one was prepared, and answer any queries you may have, this may be either face-to-face or via telephone or video conference 
• discuss the options for implementation, if necessary
• create a cash flow model to consider the overall outcome of various scenarios to consider the financial impact. Planning can take into account savings, pensions, housing, investments, income (including maintenance) and the need for life assurance to protect yourself and your dependents