Where a separating couple decide that one spouse’s pension should be divided between them, that division is carried out by a specific court order, known as a ‘pension sharing order’. Understanding what pension sharing orders are, and how they are made and implemented, helps you avoid the practical pitfalls that can delay or undermine a settlement. This article explains what the order is, how it works, and what to watch out for.
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What Is A Pension Sharing Order?
A pension sharing order is an order of the family court that divides one party’s pension by transferring a set percentage of its value to the other. It was introduced by the Welfare Reform and Pensions Act 1999 and has been available for divorce proceedings issued on or after 1 December 2000, under powers contained in the Matrimonial Causes Act 1973.
In England and Wales, the order is expressed as a percentage of the pension’s cash equivalent rather than as a fixed sum of money, which means the cash amount finally transferred can move up or down with the value of the fund before the split takes place.
Importantly, a pension can only be shared by court order. Even where both parties agree, the agreement must be recorded in a court-approved financial order before the pension scheme will act on it.
How Is A Pension Sharing Order Made?
The order forms part of the wider divorce financial settlement. Where the parties agree the overall terms, the pension share is included in a consent order submitted to the court for approval. Where they cannot agree, the court decides the matter as part of contested financial proceedings, applying the factors in section 25 of the Matrimonial Causes Act 1973. In either case, the court will require accurate pension valuations before the share can be set, which is why obtaining the cash equivalent at an early stage is important.
What Is A Pension Credit And A Pension Debit?
When a pension sharing order is implemented, the percentage awarded to the receiving party is called a pension credit, and the corresponding reduction in the other party’s pension is called a pension debit. The person receiving the credit then holds pension benefits in their own right. Depending on the scheme, they can usually either keep the credit within the same scheme or transfer it to a pension arrangement of their own. This independence is one of the main advantages of pension sharing, because it allows a clean break between the parties.
What Happens After A Pension Sharing Order Is Made?
Once the order is sealed by the court, the pension scheme is sent the documents it needs to implement the share. These usually include the sealed financial order, the pension sharing annex that sets out the percentage to be transferred, and the final order in the divorce, together with payment of any charge the scheme makes for the work.
The scheme then has a four-month implementation period to carry out the split and convert the percentage into a defined pension credit and pension debit. That period runs from the later of the date the order takes effect or the date the scheme receives all the required information and any charges.
When Does A Pension Sharing Order Take Effect?
A pension sharing order does not take effect until the later of the final order in the divorce being granted, or 28 days from the date the pension sharing order is made. Accordingly, it is generally wise not to apply for the final order until at least 28 days after the pension sharing order. Applying too early can create difficulties, and there is a particular risk if the pension holder were to die after the final order but before the share had taken effect. Careful timing protects the receiving party.
Can A Pension Sharing Order Be Changed Or Undone?
Once a pension sharing order has been implemented it is, in the ordinary course, final and cannot be varied. As a general rule, a pension cannot be shared twice in respect of the same marriage. This is why it is so important to obtain proper valuations and advice before the order is agreed, because the percentage chosen will affect both parties’ retirement income for the rest of their lives. There are very limited circumstances in which an order can be challenged before implementation, and these are subject to strict time limits.
How Can A Pension Sharing Solicitor Help?
Johnson Astills advises clients across England and Wales on obtaining and implementing pension sharing orders, from securing accurate valuations to agreeing the percentage, drafting the order and ensuring the timing is handled correctly. We work with actuarial and financial experts where a case requires it, so that the order you obtain reflects the true value of the pension involved.
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