In many divorces the pension “pot” can be high in value; even higher than the equity in the family home. Until December 2000, the courts were unable to physically share pensions. The other assets of the marriage would be divided to “compensate” the spouse without the pension. Sometimes, there would not be enough other assets and so one party could have/would have come out of the marriage financially worse off.
It was recognised that the pension was so important, that the court needed to be able to share it.
A Pension Sharing Order (PSO) can only take place if there is a court order in place. The court order can be agreed by consent between the parties or by determination of the court.
The PSO ensures one party receives a defined share of the other’s pension scheme, creating a clean financial break that cannot be altered in the future.
How will the Pension be transferred?
The process of pension sharing typically follows these steps:
In many cases it is appropriate to obtain a report from a Pension Actuary. As solicitors we have a guide from the senior family judges and courts which indicates that in almost all cases such an expert report should be obtained. The expert will consider a multitude of factors including age, health, retirement date etc and provide options on division of the pension.
To be effective, the PSO must be included with the final financial order of your divorce.
The PSO specifies the percentage of the pension’s transfer value to be moved—known as the pension credit—while the giver’s pension reduces by an equivalent pension debt. A pension share can only be considered in percentage terms.
Each scheme calculates the final transfer value one day before the PSO takes effect.
The recipient may be able to remain in the original scheme, if not the credit will go to a new or existing pension plan. A pension advisor will be able to assist on the best option.
The pension provider may charge a fee to implement the sharing order, the costs will be considered at the same time as the PSO is made.
How do I apply?
Pension’s must be considered early on in the divorce. Obtaining the pension report can take a while.
The pension providers must be given notification of the intention of making a PSO.
The court order can only be issued when at least the conditional order of divorce has taken place. The final order of divorce will be necessary before the PSO can take effect.
After the PSO is granted, it must be formally served on the pension provider, who will then carry out the transfer.
Typical timelines vary by scheme, but you should allow several months from order to implementation, depending on provider processing times and any need for valuations.
Next Steps and Further Considerations
Obtain a formal pension valuation from each scheme involved, as your solicitors we are able to obtain that upon your behalf.
Obtain financial advice to understand tax implications and lifetime allowance effects and pension providers who will receive your pension credit.
