Many people pay into pensions their whole lives without really thinking about it. It can therefore come as a surprise when divorcing that pensions are treated as a matrimonial asset, in the same way as other assets of the marriage and that their spouse is entitled to a share of it. It is therefore crucial to know how pensions are dealt with in divorce proceedings so that you know what your entitlement is to it.
The size of your pension
Each pension someone has, which may have accrued over many years, with different employers, has a value, known as the Cash Equivalent Transfer Value, or CETV for short. When divorcing, you will be asked to obtain the CETV on each pension schemes, and this will form a cumulative total of your pension provision, in readiness for your retirement. Most schemes allow you to obtain one free calculation of value each year, but charges may apply should multiple calculations be needed.
The unique nature of pensions
Pensions are not treated in the same way as other assets when it comes to distribution, and care must be exercised with their treatment. After all, it is not a pool of cash that one is free to draw from in the same way as a bank account, and there may be tax implications for early withdrawal. There can also be specific benefits for each scheme, which makes them complicated assets to value, to the point where an expert pension report may be needed, to understand the true value of the pension, the benefits which would be payable to the parties on retirement and the options for sharing.
If the cumulative pensions total in excess of £100,000 or are public sector pensions (such as NHS or local government pensions) are involved, then a pension sharing report should ordinarily be obtained. This involves a Pension on Divorce Expert (or a PODE) or a pensions expert looking at your respective pensions CETV’s and calculating what percentage share is required to achieve a fair outcome. Often, that outcome is equality of income upon reaching state retirement age. Much can depend on the marriage duration, the ages of parties, and also any benefits accrued prior to marriage or relationship, which the courts may or may not include.
How can pension claims be resolved?
If a split of pensions needs to take place, in divorce, there are a couple of ways this can happen. First and most simply, there can be a Pension Sharing Order – a percentage share of a pension is given to a spouse. This can be either an internal transfer, meaning that the receiving party becomes member of the scheme the pension is received from, or an external transfer, meaning that the money is sent to a different scheme.
Alternatively, the paying party may pay a lump sum to the receiving party to “buy off” or “offset” the claim against pension. The expert instructed is able to advise on an appropriate lump sum to offset the pension claims of the receiving party if asked to do so. An “offset” means the pension is not destructed and remains intact. It is not, however, always an option and much depends on the size of the pension share and whether capital is available to “offset”.
There is the possibility of a pension attachment order, meaning that a certain amount of a pension pot is earmarked for the receiving spouse and then paid out when the paying spouse retires. These are not normally made, and come with the risk that if the paying party dies before retirement, the receiving party gets nothing.
What do I need to do with my pension?
If a divorce is going to happen, pensions are considered in depth to ensure that you do not leave your marriage with less than you may be entitled to. It is therefore advisable to speak to a solicitor on this matter, who can assist you in securing the best outcome for you.
At Johnson Astills, our solicitors have experience dealing with pensions and would be able to assist you with resolving this amicably, or through the Court should an agreement prove impossible to reach.
Please get in touch with the Family Team today and we would be more than happy to discuss your matter further. Please call us at our office in Leicester on 0116 255 4855 or our office in Loughborough on 01509 610 312 and ask to speak to a member of the Family Team. Alternatively, you may prefer to email us at legal@johnsonastills.com or fill in our enquiry form.
