Pensions and Divorce: Pension sharing/splitting

Pension sharing/splitting

Pension sharing is available where divorce proceedings began on/after 1^st December 2000.

The court will split the pension fund between the 2 parties, and the relevant part will be transferred from the scheme member to a pension fund in the name of the ex spouse. The scheme member’s pension is reduced by the value of the amount transferred. This gives rise to a pension debit. The corresponding receipt by the ex spouse is known as a pension credit.

 The pension share will be defined as a percentage of the cash equivalent transfer value (CETV). The CETV is calculated as if the pension holder left service the day before the sharing order takes effect.

As an example, a pension share of 45% of a pension with a CETV of £300,000 would transfer £135,000 to the ex spouse and the member’s pension would be reduced by a similar amount to reduce their CETV to £165,000. The sharing order creates a “pension debit” for the scheme member and a corresponding “pension credit” for the ex spouse.

 Any future contributions made will be outside the split and belong to the individual making the contribution. The amount transferred will not be assessed against the scheme member’s annual allowance, but will be assessed against their lifetime allowance.

What rights can be shared 

All rights under occupational, personal and retirement annuity policies.

This includes pensions in payment

State related earnings pension (SERPS) and state second pension (S2P)

Since 6^th April 2011 pension protection fund (PPF) compensation can be shared.

What rights cannot be shared?

Basic State pension

State graduated scheme

Advantages of pension sharing

This provides a clean break between the 2 parties

The ex spouse has control over their share- both in relation to investment decisions and when to draw the benefits

Pension income drawn by the ex spouse is calculated at the marginal rate of the ex spouse.

Disadvantages of pension sharing

Unlike attachment orders, sharing orders cannot be varied after the decree absolute. It’s therefore important that the sharing is not applied for until the financial settlement has been agreed.

A sharing order cannot be made on a pension with an existing attachment order. Therefore if one of the parties has been divorced before ensure there are no existing attachment orders.

If you are going through a divorce and would like to discuss your options relating to a pension please do contact me on 01932 698150 or email mary@mary-waring.co.uk.

My guide Pensions and Divorce can be downloaded here.

Photo credit:Flickr/cwangdom