What will happen to my pension on divorce?
For many, their pension will be one of their biggest assets after their home and therefore it is important to consider what should happen to the pension in the event of a divorce.
Before proper consideration can be given to this question, it is important to obtain details of the pension funds and the cash equivalent values of all pensions of both parties, along with detailed information about both parties financial circumstances. These pension funds could include personal pensions, occupational pensions and state pensions.
Once that financial information has been shared between the parties, it is possible to consider how all of the assets, including the pensions, should be shared. There are a number of options to consider in relation to pensions and it is important to explore what will be the most appropriate in every individual’s situation.
Pension Sharing orders
Where a pension sharing order is made in your favour, a portion of your spouse’s pension fund will be transferred to a pension fund of your own. Some schemes will not allow an external transfer out of the scheme and therefore your own fund would be created within that scheme. If there is more than one pension scheme, it is important to consider the scheme against which a pension sharing order should be made as there may be other benefits that will be lost or acquired under particular schemes. It is often the case that specialist pension advice will be required at this stage to ensure that all of these considerations are addressed.
If a pension is already in payment to an older spouse, it is possible a deferred pension sharing order to be made. This results in the pension being shared when the younger spouse reaches retirement age and is able to receive the pension income from their fund.
This option involves the value of the pension being offset against another capital asset such as a property, investment or cash. In some situations, people decide that they would prefer to receive a greater share of the family home than they would to receive a share of the other person’s pension. That is something that can be accommodated but, once again, it is important to obtain specialist financial advice to determine the appropriate sum for offsetting purposes. Pensions are very different to any other asset. It is rarely appropriate to offset them against other assets on a pound for pound basis and an expert is likely to be required to assist with the calculation of this figure.
Deferred Lump Sum Order
This order provides that a lump sum will be paid upon the retirement of the paying party. Such orders are appropriate where the party with the pension will receive a gratuity upon their retirement and it is that gratuity that will facilitate the payment of the lump sum.
Pension Attachment Order
If a pension attachment order were to be made in your favour, you would begin to receive some of your ex-spouse’s pension at the time that the pension begins to be paid. The pension attachment order can provide for a lump sum to be paid upon retirement, for income from the pension to be paid or both. It should be noted that this option does not allow for a clean break to be achieved, which is often a priority. The payment is also dependent upon the date upon which the paying party chooses to retire and therefore can be unattractive to some.
Pensions on divorce can be a complicated area where it is important to obtain both legal and financial advice before deciding how to proceed. If you would like to discuss pensions or any other issues arising on separation, please contact Jackie or Sarah on 01903 229999.