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How are pensions split in a divorce?

Journalist: Imogen Tew, Freelance

ended 11. March 2024

Hi all 

I'm writing about divorce and pensions for the Telegraph and I'm keen for some insights please. I understand the high level options and how it works, so I'm looking for more practical tips and in-depth explanations and anecdotes that might help those who are going through a divorce.

My questions are:

  • How does the pension splitting process work in a divorce?
  • What is the most common way pensions are split during a divorce?
  • Is there a “best” way? In what circumstances is this best, and when might it work otherwise?
  • Are pensions often forgotten about/considered less important than other assets (e.g. the family home)? Why is this, and why are pensions so important?
  • How can someone going through a divorce prepare? E.g. what practical things do they need going into settlements/conversations about their pension pots? What practical steps can they take?
  • And any other aspect that you think important for those going through a divorce

My deadline is EOP Tuesday 12th March please - thank you so much in advance

8 responses from the Newspage community

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Editor
Anita Wright
Independent Financial Adviser at Ribble Wealth Management
In the UK, the pension splitting process in a divorce typically involves assessing the value of each spouse's pensions and dividing them equitably. The most common way pensions are split during a divorce is through a pension sharing order, where a portion of one spouse's pension is transferred into the other spouse's pension scheme. There isn't necessarily a "best" way to split pensions, as it depends on the circumstances of the divorce. Pensions are sometimes overlooked or considered less important compared to other assets like the family home due to their long-term nature and complexity. To prepare for divorce proceedings involving pensions, individuals should seek professional advice from a financial adviser or solicitor specialising in family law to understand their rights and options regarding pension division.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
A pension sharing order is the cleanest break for all parties and is pretty simple to execute. All you need to do it take your pension sharing order to a financial adviser and they can set up a new plan and investment strategy and move the momey into your name. Pension earmarking is another option, normally used for final salary schemes, especially if in payment. Sometimes these are favoured by the pension memeber, in the hope the ex-spouse remarries as they could be entitled to cease payments at that point. Individual circumstances need to be considered for all parties, as it might be best to retain one asset over another. If one party would find it more difficult obtaining a mortgage, they might want to retain the home and offset it with their mortgage, for example.
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Editor
Scott Gallacher
Director at Rowley Turton

Divorce proceedings involving pensions can be complex. Two common approaches are offsetting, where one party receives other assets instead of a portion of the pension, and splitting via a Pension Sharing Order, which assigns a specified percentage of the pension value to the non-pension member. Defined Contribution schemes offer straightforward division, but Defined Benefit schemes present challenges. Pensions are often neglected in favour of more immediate concerns like housing. For instance, the lower-earning wife may retain the house for herself and the children, while the husband retains his pension. However, this may create a pension divorce gap, as the husband may be very motivated to invest in property, while the wife, typically earning less, may not prioritise pension rebuilding in the same way as it's not such an immediate need. Consequently, this often leads to a pensions divorce gender gap.
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Wes Wilkes
CEO at IronMarket Wealth
I have advised on a number of divorces where the pension was a large part of the overall assetts of the divorcing couple.
In every case they have been apportioned with the use of a pension sharing order & as with everything within finance, they can be complicated until they are explianed, understood and simplified. They are an asset along with any othern but care must be taken as to the impact and validity of sharing when they can be so varied from Final Salary in payment to SIPPs holding iliquid commercial property.
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Rita Gupta
Managing Director at LGFL Ltd
Pensions are valuable assets which must be properly dealt with in divorce proceedings. The court will generally seek to equalise pension incomes on retirement. When I first practised, the wife often focussed on the house and the husband wanted to preserve his pension and it was a trade off. It is now widely accepted by family lawyers and judges alike that failing to address a wife's pension needs on retirement is shortsighted and can leave her with insufficient pension income.
If we look at women who have played traditional roles, taken career breaks or have worked part time, often their pension provision is minimal. With rising living costs this leaves them in a very vulnerable position. For this reason, there needs to be full disclosure of the transfer values of pensions and you need to instruct a pension expert to advise on the best possible way to provide equality of pension income on retirement. Pensions can be shared of offset against other assets.
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Tahina Akther
Barrister and Co-Founder at Wildcat Law
When it comes to pensions in divorce the catchily titled PAG2 (Pensions Advisory group 2) report is the bible. Whilst there are typically not a lot of professional negligence cases against family lawyers, where there are, the majority revolve around pension offsetting. That is individuals believe they were not suitably advised about the true value of pensions and hence accept a lower amount of other assets.
There are two key types of financial settlement, those based on needs and those where needs are met (typically big money cases). They result in often very different outcomes hence there is not simple guide. In a non-needs based case any assets (including pensions) acrued before and after the relationship are excluded, however in needs based cases Judges can bring in those assets to.
Pensions are especially tricky as one party will often want to keep the family home for example and willingly give up a share of a pension to offset this. This is why expert reports are required.
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Poonam Chudasama
Family Solicitor at MyFamilyLaw.uk
Pensions are unlike “normal” capital in that a Pension fund is intended to give the person benefitting a long term income after retirement. Calculations can only be done by a professional. Pensions are assessed by their value given through a CETV (Cash Equivalent Transfer Value). When negotiating a settlement, the value of both pensions/all pensions are calculated and a Pension Sharing order is based on the number of years married. It is always worth exploring whether a pension order might be suitable for either party. It might not always be the right answer but there are alternative options for both parties who might wish to preserve their pension. Pensions are often forgotten about, as most parties involved in a separation are concerned more about their current needs and do not always consider thier long-term needs. Practical steps you can take are to obtain your CEVs, your state pension forecast, your P60s and wage slips if you are already recieving pension income.
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Joshua Gerstler
Chartered Financial Planner at The Orchard Practice
If you are getting divorced, do not underestimate the importance of your spouses pension. For most people, they are the most valuable asset you will ever own, second only to your home.

Make sure you fully understand the different types of pensions that you and your spouse own.

Some will be a pot of money which can be easily understood. However, you may want to go further than this. Normally 25% of the pot is tax free, but in some cases there can be a higher tax free amount. If you are an additional rate tax payer, this could be worth an extra 45% to you.

Some are Defined Benefit pensions which provide a guaranteed income for the rest of your life.

Hopefully you would have spoken with a Financial Adviser and prepared a lifetime cashflow for yourself and will know what your own needs are for the rest of your life. You can then use this to determine what would be more useful to you: a pot of money or a regular income.