Pension funds often form the second largest asset after the family home. It is, therefore, very important to seek legal advice to understand your pension rights following the breakdown of a relationship.
Just like any property you own or savings you may have, pension funds are an asset capable of being divided between you and your spouse or civil partner should you decide to divorce or dissolve your civil partnership.
This may not be a necessary step if both parties have similar amounts invested in pension funds, but if there is a disparity between them, the court has the power to redistribute the benefits derived from pension funds to ensure that the pension assets are divided fairly between the parties.
However, a court can only make an order for pension sharing upon divorce or dissolution of a civil partnership where a final decree is made and therefore pension sharing is not an option to parties seeking judicial separation or entering a deed of separation.
Valuing the pension
The first step is to contact your pension providers to request an up-to-date valuation for each pension fund you have. The pension provider will send you a written valuation or cash equivalent transfer value (CETV) which sets out what each pension fund is currently worth and your expected pension payments.
You are entitled to have details of your partner’s pension assets, as they are entitled to have details of yours. This is usually exchanged when carrying out disclosure of all assets and liabilities. This enables both parties to have an understanding of each other’s pension assets. Any questions can be asked in relation to your partner’s financial disclosure should you wish to receive further clarity on certain points.
The CETV may not represent the actual market valuation of the pension fund. This is not because of an error, but due to how the calculations are made. Where pensions are expected to be divided, and certainly where they are of significant value, it is always advisable that a pensions’ expert, known as an actuary, is instructed to provide an accurate valuation of the pension fund and its expected payments.
Dividing the pension
There are various ways to redistribute pension values as part of a divorce or dissolution settlement, and the right option will depend on the overall asset pot the parties have, the type of pension scheme and other factors such as age and employment status.
The list below breaks down the options available:
- Pension Offsetting – In this process, the pension fund is not split at all but offset against the value of other assets held between the parties. It can often be used in cases when one party wishes to retain the family home instead of receiving a future pension provision. Offsetting does not involve the court making a pension sharing order.
- Pension Sharing Order – This method enables an existing pension fund to be divided and transferred from one party to the other following divorce or dissolution proceedings. This enables the recipient to either become a member of their former partner’s pension scheme, or to transfer the value of the scheme to another pension, subject to the scheme’s rules.
- Pension Attachment Order – These orders provide that when the pension holder retires, a set amount will be paid directly to the other spouse based on the fund’s value at that time. This includes both lump sums drawn from a pension or as pension income.
For pension sharing and attachments, the court will need a percentage calculated as to the amount that is to be allocated and that is also the role of a pensions’ actuary. There may be several pensions that need sharing in different proportions to create the overall division. The starting point is always equality, regardless of whose name a pension is in, but sharing a pension is just one aspect of financial provision and this will be taken into account amongst all the assets available for distribution.
If you require further advice about how your pension fund will be assessed should you choose to divorce or dissolve your civil partnership, please get in touch with one of our family law experts on 0808 252 5231 or request a call back online.