How Are Pensions Split in a Divorce: A Comprehensive Guide for 2024

By Joanna Toloczko, Head of Family

The importance of pensions

When I see divorce clients for the first time, it is common for them to be dismissive regarding the issue of pensions. They can often be very unclear about what pensions they have. Sometimes they assume that as they have not contributed to a pension for a while, it has no value. Many tell me that they have already agreed not to make a claim in respect of their spouse’s pension.

It is important for people going through a divorce to understand that pension funds can often be one of the most valuable family assets.  

Having a clear understanding of your own pensions

The first step is for each party to find out what pensions they have and how much they are worth.  

It is possible to find out how much you will receive by way of state pension by applying for a state pension forecast using the following link

Check your State Pension forecast – GOV.UK (www.gov.uk)

You should also consider whether you have a pension/s with any of your previous employers or whether you may have a personal pension that you have forgotten about. If you are not sure, but you have the name of your former employer or pension provider, it is possible to investigate the position using the following link

Find pension contact details – GOV.UK (www.gov.uk)

Even pensions from long ago to which no contributions have been made for many years will have value.  They may have grown in value due to the performance of the funds in which they are invested. 

Pension information and the cash equivalent value

As far as workplace and private pensions are concerned, the starting point figure which your legal advisors and the court will work from is the cash equivalent value. This is a single figure assessment of the value of the pension based on what the pension scheme would pay, were you to transfer the pension to a different scheme. 

It can sometimes take a while for the cash equivalent value figure and the other necessary pension information to be produced. Therefore, it is essential that you apply for this information at an early stage so that it does not hold up the negotiations. This is particularly the case if you have a public sector pension for example a police pension, teacher’s pension or NHS pension.  Please do bear in mind though that most schemes will only supply one cash equivalent figure every 12 months, free of charge.  Therefore, you should discuss with your solicitor and/or mediator the appropriate time to apply for the pension information.

The pension information is then exchanged, along with the other information and documents relating to the parties’ financial circumstances.

Pension reports

You and your solicitor should give careful consideration as to whether it is necessary to obtain a report from a Pensions on Divorce Expert (PODE). Such a report can be invaluable in certain circumstances. However, they are expensive. It is usually prudent to obtain a report from a PODE in the following circumstances :-

• In cases where the CEVs exceed £200,000
• Cases involving a defined benefit (final salary) public sector scheme  
• When pensions need to be shared to produce equality of income
• Where there is a substantial disparity in the ages of the parties 
• Older occupational schemes set up before April 2006
• Pensions that are difficult to liquidate
• Where either party has a serious medical condition 
• Cases where offsetting is to be considered

The Court’s powers with regard to pensions

The Court has three options when considering pensions as follows :-

1. Pension sharing order – This is where a specified percentage of the pension holder’s pension is awarded to the other spouse as a pension credit, which is then invested in a separate pension for the spouse. The value of the pension holder’s pension is reduced by the pension credit.  Each spouse then has their own separate pension going forward.  

2. Pension attachment order (also known as earmarking) – This is where the order earmarks part of the pension pot (lump sum and/or annuity) which will then be paid to the other spouse once the pension is in payment on retirement.  This option has not been popular as it is more uncertain and riskier, for example if the pension holder dies before retirement. 

3. Offsetting – This is where one party agrees to forgo a pension sharing order or accepts a smaller percentage in return for a larger share of another asset. 

General principles

Every case is different and will be determined on its own facts. You should not attempt to negotiate about pensions without expert advice from a solicitor.  

However, the following are useful guidelines:-

• In cases involving a long marriage, where the court is concerned to ensure that each party’s needs are met, the appropriate approach will normally be to divide the pensions between the parties in a way which achieves equality of income upon retirement. 
• In cases where the pension represents a small proportion of the overall assets or the parties are young and the CEVs appear to be a reliable reflection of the actual value of the pension, it may be more appropriate to share the cash equivalent value between the parties. 

Conclusion

If you are unsure about how you should approach the issue of pensions in your divorce, please consult our Head of Family, Joanna Toloczko on 07756 288621 or at [email protected]