Pensions and divorce – not just about the split

When it comes to dividing up assets on divorce, pension rights can turn out to be one of the most valuable elements – and often the most overlooked.

Last October, the Financial Conduct Authority reported that employee benefit consultancies were recording “the average size of transfer at over £250,000”.  Such large values mean that pensions can currently represent the greatest asset to be considered as part of a divorce settlement.

In the UK, there are currently three main ways of dealing with pensions on divorce:

• Pension sharing Under pension sharing the ex-spouse/civil partner’s pension(s) are shared, with a percentage (or specified amount in Scotland) allocated to the ex-spouse/partner. The shared element is either retained in the existing pension scheme or, more often, transferred to the ex-spouse’s/civil partner’s scheme.

• Pension offsetting This option involves offsetting the transfer value against other assets. For example, one spouse might gain a larger share of the family home in exchange for receiving no pension benefit from the other spouse.

• Pension attachment orders (pension earmarking in Scotland) Under these arrangements, the ex-spouse/civil partner receives a proportion of the pension and/or lump sum when the divorced member starts to draw benefits (in Scotland it’s just the lump sum that can be earmarked).

If you are involved in a divorce, expert guidance is essential to achieve a fair pension outcome. Contact us now and we can:

• Explain how each of the options would work for you.
• Assess the transfer value that has been calculated for any benefits.
• Advise on any pension transfers required.
• Explain how you can improve your financial position at retirement.

The value of your investments and the income from them can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Occupational pension schemes are regulated by The Pensions Regulator.