What happens to my pension if I divorce?
This is question at the forefront of many people’s minds when a relationship breaks down. Commonly it is the husband who has built up the larger pension provision, as the wife will often have taken time out of work to raise the family and has little if any provision. The husband (or the one with the larger pension) consequently feels aggrieved at the thought of sharing that pension, feeling it unjust. Frequently the husband will say he has worked all his life to accumulate pension and that ‘she is not touching my pension!’ The wife on the other hand can be led to believe that she has no entitlement to the husband’s pension, and has grave concerns as to how she will survive in later life. Sometimes, the pension is not at the forefront of the wife’s mind, as due to her stage in life, she is more concerned as to retaining the house as a home for the children. Of course, there are also cases where it is the wife who has the greater pension so all gender references in this article are interchangeable.
The fact is that pensions accumulated during the marriage are taken into account along with all the other assets. As a generalisation both parties are entitled to 50% of all the pensions accrued at least during the marriage, and often prior cohabitation. In order to ascertain what the value of the pension is for matrimonial purposed, the pension trustees will provide a Cash Equivalent Value. This is free of charge provided the pension is not in payment. Only one CETV is free per annum. Pensions should not be treated as like for like with liquid capital such as property and savings. It is in fact a future income stream. Nevertheless, the CETV gives a basic working figure.
In many cases it is advisable to instruct an actuary to report on the true value. This is particularly important in public sector schemes, armed forces, teachers and police pensions where the CETV does not give a wholly realistic value of benefits. An actuary can also advise as to what percentage of pensions is needed to give equality of income. This is not necessarily 50% as statistically women live longer than men and so require a greater fund to produce the same income. An actuary can also provide an ‘offset’ amount. This helps for instance, where one party requires a larger sum to provide housing for the family and offsets that against a claim on the pension.
So once we have a value, what happens to the pension?
There are 2 main types of pension sharing:
- Pension Sharing Order
The effect of this is that there is a debit from the pension member’s fund and a credit to the person receiving the fund. On receipt of that fund into the non members own pension ‘pot’, it is then there for them to add to, or draw down at appropriate times. It makes no difference whether the member of the pension dies, or the non member remarries, it is their pension to do as they wish. Most pension providers charge an implementation fee for pension sharing, and these can be considerable. It is also vital to take advice from an Independent Financial Advisor on the most appropriate and beneficial pension scheme for your circumstances.
- Pension attachment orders.
These were originally named Pension earmarking. They are much more limited in that they terminate both on the death of the member of the pension scheme and where the non member remarries.
They also lack the flexibility of pension sharing in that the fund remains in the original scheme rather than in whichever pension fund the non member chooses. Additionally the non member of the scheme can only receive payment when the member takes his/her share.
Whether a pension sharing order or pension attachment order is agreed, both need to be sealed by the court, along with the order setting out the full financial arrangements, (consent order or imposed by court) and can be implemented once decree absolute is obtained.
This only gives an overview of the process and is no substitute for detailed specific advice. Pensions are a complex area of law and it is vital to take expert legal advice before agreeing to give away or reject any claim on a pension. Janice Leyland has extensive experience of dealing with such matters and would be happy to provide advice.
For an initial consultation please contact Janice on 01905 730450 or email firstname.lastname@example.org