In this guide
Pensions are often one of our most valuable assets, so it’s important to understand your rights if you are getting a divorce.
Many people are uncertain as to whether they are entitled to any of their ex spouse’s pension benefits during a divorce or dissolution of a civil partnership.
In this article, we will outline:
- What do you need to consider before dividing pensions?
- How can pensions be split during a divorce?
- Can I protect my pension in a divorce?
- How long after a divorce can you make a pension claim?
- What happens to pensions if you are just separating?
Related content: How do I protect my money in a divorce?
Preparing to divide pensions
Many of us now retire with multiple pension pots from different employers, and some may have private schemes as well.
Some preparation therefore needs to be done before you can divide your pensions in a divorce or dissolution of a civil partnership.
Both parties need to have a list of all the different pension assets that they hold, and have obtained a copy of the rules for each pension plan. This includes:
- Workplace pensions
- Personal schemes, including self-invested personal pensions (SIPPs) and stakeholder pensions
- Any portion of your basic state pension that was built up under the additional state pension rules before April 2016.
You will need to know the recent values of your and your partner’s pensions. This includes the cash equivalent transfer value (CETV) of any final salary pensions and a completed “Form E financial-disclosure”.
Scheme administrators have an obligation to provide these details.
Be aware of any other pension benefits that might be available to a spouse or civil partner under these schemes. These might include sums that would be paid to you or your children on a spouse’s death, which may cease with divorce.
When negotiating a financial settlement, the value of these should be taken into account.
Different rules across the UK
The rules about which pensions should be divided differ in Scotland from those in the rest of the UK. Only the value of pensions you have built up during your marriage or civil partnership is taken into account.
In England, Wales and Northern Ireland, the value of all workplace and private pensions is included in divorce settlements, whether they were built up before or during a marriage or civil partnership.
You can discover more about the financial implications of divorce in our article here.
How is a pension split in a divorce?
There are various options to split pensions as part of a divorce or dissolution settlement. The right one for you will depend on the rules of the pension scheme that you are splitting, as well as your age and employment status.
In some cases, pensions can be transferred immediately. In other circumstances you may only receive a percentage share of the pension when your former spouse or civil partner has retired.
Contact a financial adviser or solicitor before you attempt to split a pension, as the rules can be complex.
This list below breaks down the options that may be available, depending on the circumstances:
1. Pensions offsetting
Here the pension is not actually split at all.
Instead, it is offset against the value of other assets. So for example, you may get a bigger share of the family home in exchange for a share of your ex-partner’s pension.
2. Pension sharing order
This is a legally binding agreement to split a pension at the time of divorce. The pension does not have to be divided 50/50 and a court works out the exact percentages.
The person who receives a share of the pension can either become a member of their former partner’s pension scheme, or transfer the value of the scheme to another pension. What happens depends on the rules of the scheme.
3. Deferred pension sharing (not Scotland)
If one of you is older and already receiving a pension, then deferred pension sharing can give you the option to share the pension at a later date. This also requires a court to make an order.
4. Deferred lump sum (not Scotland)
A deferred lump sum is a court order requiring a person to pay a percentage of their tax-free pension lump sum to their former spouse on retirement.
5. Pensions attachment (“pensions earmarking” in Scotland)
A percentage of a pension is earmarked for the other member of the divorcing couple. They only start to receive it when the former spouse or civil partner starts taking the pension.
6. An individual agreement
Divorcing couples can come to their own financial agreement about sharing their pensions without involving the court.
You will need to document your agreement in a formal legal way. It is recommended that you take professional advice before going down this route.
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Pension sharing after retirement
Pension sharing for those divorcing who are already retired is still possible, but the rules are a little more complicated.
If your ex-partner is already receiving an income from a pension, the taxman will not allow you to take the 25% tax-free lump sum to which pension-holders over 55 are generally entitled. This is because HMRC says it is too complex to work out whether a lump sum has already been taken by the other member of the pension fund.
If you are weighing up whether to take a 25% lump sum from your pension, this article might help you decide.
Do I have to split my pension in a divorce?
A court will attempt to achieve a “fair and equitable” settlement when a couple divorce. That does not necessarily mean your former spouse of civil partner is entitled to half of your pension.
They will also take into account:
- Dependent children and who they live with
- The length of time you were married or in a civil partnership for and how much of the pension was built up before it
- How each member of a couple “contributed” to a marriage, including bringing up children
- Whether you’re ex is young enough to be able to work to rebuild their financial position
How to protect your pension in a divorce
If you are the main breadwinner in a relationship, protecting your pension might mean keeping as much of the pot you have saved into as you possibly can.
However, if you are the lower earner and have been bringing up children, you are likely to want to protect your access to retirement savings as well.
Some ways to protect your pension may include:
- Agreeing to offset it against other assets such as the family home
- Having correct valuations for all pensions and other assets to ensure the division is correct
- Once you have reached a financial agreement, put it into a legally binding consent order to prevent problems later
How long after divorce can you claim a pension?
Unless a legally binding settlement has been reached after a divorce, there is no time limit for you to make a claim on the finances of your former spouse or civil partner. Nor for them to make a claim on yours.
Therefore you should make a formal financial agreement as soon as you can to separate your finances from your partner’s. This is allow you both to have a clean break and lead independent lives.
You can download Form E, which allows you to make one of these agreements, here.
What if we’re just separating?
If you are just separating, and not formally divorcing or dissolving a civil partnership, your pension arrangements remain the same.
However, if you want to change your pension beneficiary in the event of your death, you should fill in your pension provider’s “expression of wishes” form.
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