Pensions

Are pensions included in a divorce settlement?

Yes. The court is required to consider all pension arrangements held by either spouse, including workplace, personal and public sector pensions, as well as pensions already in payment. Where one spouse has built up significantly more pension provision than the other, often because the other took time away from work to raise children, the court will consider how to address that imbalance so both parties have adequate income in retirement.

How are pensions valued?

The starting point is the cash equivalent transfer value (CETV), which can be requested from each pension provider. For defined contribution pensions, the CETV is usually close to the fund value and is generally reliable. For defined benefit (final salary) schemes, particularly public sector pensions, the CETV can significantly understate what the benefits are worth.

For this reason, guidance from the Pension Advisory Group recommends that a pensions on divorce expert (PODE), usually an actuary, is instructed in many cases, particularly where defined benefit schemes or offsetting are involved.

What are the options for dividing pensions?

There are three main options:

• Pension sharing. A percentage of one spouse's pension is transferred into a pension in the other's name. This creates a clean break and is the most common approach.
• Offsetting. The pension holder keeps their pension, and the other spouse receives a larger share of other assets, such as the family home. Because a pound in a pension is not equivalent to a pound in cash, offsetting needs careful calculation.
• Attachment. Part of the pension income or lump sum is paid to the other spouse when the pension comes into payment. This is less common, as it does not create a clean break.

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What about pensions built up before the marriage or after separation?

In cases where there is more than enough to meet both parties' needs, the court may exclude pension rights built up before the marriage or after separation, focusing only on the portion accrued during the relationship. Periods of cohabitation immediately before the marriage are often treated as part of the relationship. In most cases, however, needs are the deciding factor, and the court may draw on the whole pension if that is necessary to achieve a fair outcome.

What happens to the State Pension?

The new State Pension, which applies to those reaching State Pension age from 6 April 2016, cannot be shared on divorce, although it remains relevant when assessing each party's future income. Some older entitlements can be shared, including the additional State Pension for those who reached State Pension age before April 2016, and in some cases a "protected payment". A State Pension valuation can be requested from the Department for Work and Pensions.