If you’re considering, or in the process of getting divorced, you might be wondering how pensions are divided. Dividing pensions can be done in several ways, which is why it’s worth understanding all the options before you decide which solution is right for you.
After the family home, your pension is likely to be your biggest asset. There are several types of pension you can divide when getting divorced. So, it’s worth making a list of all the pensions that you and your former partner have and checking the rules for each scheme.
Pensions that can be divided
Depending on the rules of the scheme, pensions that can be divided include:
- Personal pension schemes (includes Stakeholder and Self Invested Personal Pensions)
- Pension schemes you have through work
- Any part of your entitlement to the new State Pension that is ‘protected’ and built up under the old pre-April 2016 Additional State Pension, not the basic entitlement to new State Pension
It’s worth noting that the rules for dividing pensions depend on where in the UK you are getting divorced.
Dividing Pensions in England, Wales or Northern Ireland
How a pension can be divided depends on where you’re getting divorced.
If you’re getting divorced or dissolving a civil partnership in England, Wales or Northern Ireland, the total value of each pension you have is taken into account.
This means that all of your pensions, including those accumulated privately and through work will be factored into your divorce or dissolution, not just pensions that you and your former partner built up while married or in a civil partnership.
Dividing Pensions in Scotland
In Scotland, only the value of the pensions that you and your former partner built up while married or in a civil partnership will be taken into account. This means that any pension funds accumulated ‘after’ your date of separation or prior to getting married or entering a civil partnership, will not be part of any division.
How can pensions be divided?
There are several ways that a pension can be divided.
Option #1 – Pension Sharing Order
Arguably the most common way of dividing pensions is a pension sharing order. A pension sharing order gives you a percentage of any one, or more, of your former partner’s pensions. This will either be transferred into a pension in your name or you may be able to join your former partner’s pension scheme.
If you want to transfer the pension into your name, but you don’t have an existing pension, you will need to set a scheme up in your name.
Option #2 – Pension Offsetting
Pension offsetting means that the value of any pension is offset against any other assets.
For example, you might be given a bigger share of the family home in exchange for your former partner keeping their pension.
Option #3 – Deferred Pension Sharing (only available in England, Wales and Northern Ireland)
Deferred pension sharing can be used if your former partner’s pension is being shared or your former partner has already retired and is receiving their pension, but you have not yet retired and you’re too young to claim a pension.
Under deferred pension sharing, you and your former partner agree to share the pension at a later date. However, deferred pension sharing can be complicated and may incur higher legal costs.
Option #4 – Deferred Lump Sum (only available in England, Wales and Northern Ireland)
This option means that you will get a lump sum from your former partner’s pension once they retire.
Option #5 – Pensions Attachment Order (known as Pensions Earmarking in Scotland)
This option means that you get some of your former partner’s pension when they start receiving it. You can get some of the pension income, a lump sum, or both. However, you will be unable to get pension payments prior to your former partner receiving their pension.
Option #6 – Individual Agreement
It’s not mandatory that you have to share a pension following divorce or the dissolution of a civil partnership. You and your former partner can come to an informal agreement. However, this will need to be legally documented.
Dividing pensions after retirement
The rules for dividing pensions after retirement are different.
If you and/or your former partner have retired, it’s still possible to divide pensions. However, the rules are different. For example, you will not be able to take a lump sum from your former partner’s pension if they are already receiving it.
Court orders
In certain circumstances, you will need a court order to divide pensions. For example, only the court can make a Pension Sharing Order or Pension Attachment (Earmarking) Order.
Pension offsetting can be agreed without a court order. Meanwhile, you and your former partner can ask the court to approve an individual agreement and make it a court order.
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