Splitting up may divide your pension savings
THE courts have three separate powers to distribute capital on divorce, the first two, namely the ability to transfer a property from one party to another, and the ability to order one party to pay the other a specific sum of money, are familiar to most couples. The third power is the power to make a pension sharing order, which is much less well understood, despite the fact that for many families the pension pot may be the most valuable asset, apart from the family home.
Pension sharing orders are only available on divorce, or on the dissolution of a civil partnership. They cannot be made over a foreign pension or the basic state pension, but can be made over any other kind of pension scheme, whether public or private sector, occupational, contributory or non-contributory.
Pension sharing orders have largely replaced the old system of ear-marking part of a pension scheme for an ex-spouse. This was unsatisfactory as there could not be a clean break and the actions of one party in relation to the pension scheme obviously affected the other. Neither could individuals deal independently with their own pension fund without having to seek the other’s agreement. By contrast, pension sharing orders allow a percentage to be completely sliced off the main pension and then either kept in the same scheme, but as an entirely separate fund, or reinvested in another scheme. It cannot be taken as cash.
The ex-spouse is then subject to the rules of the pension scheme in terms of the age at which benefits can be drawn. Women live longer than men, and so an ex-wife will need a greater share of pension assets in order to produce the same income on retirement.
The split is complete at the time of implementation, and after that each party pays into their own separate scheme and neither will get any benefit from any contributions made by the other. For instance, if an ex-wife decides to keep her pension credit in her ex-husband’s occupational pension scheme rather than moving it elsewhere (and the scheme agrees) she becomes a member of the pension scheme like anyone else. Her fund is entirely separate from her ex-husband’s and any payments made by him or his employer into his fund do not benefit her.
Pensions can be shared in any percentage, including 100 per cent (i.e. the transfer of the whole of a pension fund).
Often, one party may prefer to keep their pension intact and offset other assets against it, or they may need to do so because there is an overseas pension which the court cannot divide. In that case, a greater share of the other assets can be offered in lieu, but it would be usual for there to be a discount in value to reflect the fact that cash is more valuable than an illiquid pension, which may not be realisable for many years (if at all).
Amy Radnor is a solicitor in the family group at Charles Russell.