Pension Sharing Order
- What is pension sharing on divorce?
- Who is entitled to a pension sharing order?
- What types of pension sharing are there?
- What are the benefits of a pension share?
- What is a pension sharing order calculation?
- Can a pension sharing order be made after a divorce?
- What if I don’t want a pension share?
- Is legal advice needed before a pension share is agreed?
- How long does it take to process a pension sharing order?
- Who is responsible for sending an order to the pension scheme provider?
- Is an actuary needed for a pension sharing order?
- What does a pension sharing order actuary consider?
- What happens if the transferor dies before the pension share transfer
A Pension sharing order is a common matrimonial feature that must be considered with great care and caution. This is because of the complexity around the area of pensions and the varying benefits attached to them.
A divorce or separation is often emotionally and physically difficult and stressful. Dividing up the assets which were once shared as a married couple can also be quite challenging. As well as assets including the marital home, vehicles and other assets many couple will also need to share a pension which they held.
What is pension sharing on divorce?
Pension sharing on divorce is a formal agreement to divide your pension assets at the time of divorce. As your pension is an asset, just like savings and property, you must include it when calculating your total worth. When calculating the value of each pension fund, all funds are considered. This means that even if your pension was built up before your marriage or civil partnership, it will still be included in the pension sharing calculation.
The pension sharing calculation is carried out by the court. The receiving party can become a member of the pension scheme or transfer the value to a new pension provider. The money received from the pension sharing order is known as the pension credit. Pension sharing orders are covered by the Welfare Reform and Pensions Act 1999.
Who is entitled to a pension sharing order?
Pension sharing is an option only available on divorce or the dissolution of a civil partnership. Unmarried couples are not entitled to a pension sharing order.
What types of pension sharing are there?
There are 3 options of dividing pensions as part of divorce proceedings. These are:
Pension sharing: this is an agreement to divide your assets at time of the divorce. The courts will calculate the percentages of the pension sharing. The partner receiving the pension can become a member of the exiting pension scheme of their spouse. Alternatively the value of the pension can be transferred to a new pension provider.
Pension offsetting: this is where the value of the pension is offset against the other assets from the marriage. One spouse may decide to keep the entire pension rather than sharing this. In return the other spouse may take other assets such as property or cash equivalent to the same value as the pension they would have received.
Pension earmarking: this is where all or part of the pension is earmarked to be paid to one party when the other partner starts to draw pension benefits. In this type of pension sharing there is no legal transfer of ownership of the pension.
What are the benefits of a pension share?
The main benefit of a pension share is that it provides a pension arrangement in your own name which can be invested as you wish.
This allows each partner to decide on their own pension following the divorce. This enables you to make your own investment decisions and decide your own level of retirement income.
A pension sharing order can also be advantageous where one party has high value pensions when compared to the other assets of the marriage. In such circumstances one partner may consider it is better to carry out a pension sharing where they are likely to benefit.
Furthermore, a pension sharing order is not revoked on remarriage. A pension sharing order offers a clean break for both parties allowing separating partners to move on with their lives.
What is a pension sharing order calculation?
An application for a pension sharing in a divorce is made to the court as part of the divorce.
The court will carry out a pension sharing order calculation and award the pension percentage split after assessing the entire marital assets.
The courts during a pension order calculation will consider the value of:
- Workplace pensions
- Additional State Pension but not the basic State Pension
- Personal Pensions
Pensions are valued on their Cash Equivalent Value. The Cash Equivalent Transfer Value is the figure the pension provider could transfer to another pension fund.
The court can decide the specific entitlement of the transfer value of pension percentage while considering any mitigating factors. Mitigating factors affect the pension share received and can include consideration of age, earning potential, length of marriage and also how close both partners are to retirement.
This is calculation is based on the total value of the pension which is calculated the day before the pension order takes effect.
Can a pension sharing order be made after a divorce?
A pension sharing order cannot take effect during a divorce procedure until the decree absolute is granted.
The provider of the pension arrangement then has another four months in which to implement the pension credit. This time starts from the day the order takes effect or the day they receive the documents from court, if that’s later.
What if I don’t want a pension share?
In some situations, one partner may not want a pension sharing order.
An alternative and preferred option to a pension order is offsetting. Other assets such as the family home, cars, jewellery can be traded off against the value of the pension.
This is potentially a straightforward option which assists you to achieve a ‘clean break’, the same way a pension sharing order would.
Is legal advice needed before a pension share is agreed?
It is important to note that pension providers cannot carry, divide or transfer any pension without the Courts instructions. An application for a financial court order is therefore required in order to obtain a pension sharing order.
Most pension sharing on divorce cases are not contested. Separating partners will often reach an agreement through their family lawyers.
In such circumstances you can seek legal advice to draft a consent order. This consent order is needed from the court for the pension provider to be able to make the necessary changes. In such circumstances the application for a financial court order is usually dealt with quickly and the court issues a pension sharing order.
If a pension sharing order cannot be agreed then it is strongly advisable to get legal advice before having the court decide on the pension sharing calculation.
How long does it take to process a pension sharing order?
After the court has issued an Order stating the pension percentage transfer a form P1 will need to be completed and attached to the Order.
Once the court has completed an order stating the percentage amount of the pension to be transferred the court will require a form P1 to be completed. This form will need to be attached to the court order.
The Form P1 contains the essential information required to implement the pension sharing order. It will usually include the full names, dates of birth and National Insurance numbers of both separating partners, the policy number of the pension, the address of the pension provider and the name of the person responsible for administering the pension scheme.
The Form P1 should also include the charges to be made by the pension provider and who is to pay them. If there is no agreement on who is to pay the charges, then these are paid by the transferor.
Once the pension provider has received all the documents, it will have four months from either the date of the Decree Absolute or, if later, seven days from the expiry of the time limit for appealing the financial order (usually 21 days) in which to implement the pension sharing order.
Who is responsible for sending an order to the pension scheme provider?
Generally, the court which makes the pension sharing order will send the order together with the form P1 and the Decree absolute to the pension scheme provider. In other situations, the court may direct one of the separating partners to send the documents to the pension provider.
It is therefore extremely important to consider and review the terms of the pension share to ensure that you are aware on who is to provide the documents to the pension scheme provider. This will avoid delays with the pension order being implemented.
Is an actuary needed for a pension sharing order?
Pensions can often be a difficult asset to deal with in divorces. This is usually where pensions have a range of benefits prescribed under specific conditions which makes it difficult to value.
Cash Equivalent Transfer Value (CETV) is the figure used to calculate the value of a pension.
However, the Cash Equivalent Transfer Value is not always reflective of the real value of the pension. Sometimes the CETV does not take into consideration the value of the benefits or may understate the value of the benefits. Where this happens a pension sharing order actuary may be required.
Pension Actuaries advise trustees and companies on the management of the pension schemes. Pension Actuaries also work with specialists such as pension lawyers, pension scheme providers and employers.
What does a pension sharing order actuary consider?
Pension sharing order Actuary can provide a report to ascertain the real value of the pension along with the anticipated value on retirement.
Age is a common factor which affects the difficulty in valuing a pension. This is because on average women tend to live longer than men. This usually means the same Cash Equivalent Transfer Value may provide a lower pension for female same aged as a male.
Factors such as this stress the importance of engaging with a pension sharing order actuary.
It is also advisable that a pension actuarial report is produced where the pension is an armed forces pension, police pension or teacher’s pension, as well as other types of occupational or final salary pension. These types of pensions are very complicated and may not be able to be adequately considered by family lawyers or the courts.
What happens if the transferor dies before the pension share transfer
The transferor is the person who is the scheme member of the pension and is person transferring their pension to the other party. If the transferor dies before the implementation of the pension sharing order then the timing of the Decree Absolute becomes critical.
It is usual for the Decree Absolute to be applied for after a financial consent order has been issued by the Court. There is an inherent risk where the Order includes a Pension Sharing Order because the pension share cannot effect until at least 28 days following the date of the Decree Absolute or the date of the Order, whichever is the later.
This therefore means that if the transferor dies within 28 days of either the Order or the Decree Absolute the Pension Sharing Order will not take effect. Additionally any death benefits attached to the pension scheme (which is common with final salary pensions) to the surviving spouse will be null and void.
If however the scheme member was alive after 28 days of both date of the Decree Absolute or the date of the Financial Order then the implementation can take place.
Speak to our Pension Sharing Order experts today to arrange a consultation today
An incorrect pension share can have a devastating impact on future retirement which is why our pension law experts cannot stress the importance of getting proper legal advice.
Contact our family lawyers on 0330 094 5880 or let us call you back to arrange an initial no obligation consultation to discuss your pension sharing order or for advice on how to contact a pension sharing order actuary to ascertain the value of a pension.