A pension is often a person’s most valuable asset after the family home…
…and may even be more valuable. When a husband and wife decide to divorce (or a civil partnership is dissolved) it is frequently the case that one of them will own valuable pension rights and the other will not, or will own such rights of a smaller value. The interests of fairness may justify court intervention to redistribute these rights, or make some other provision as compensation.
A variety of different types of pension may need to be considered, including personal pensions, stakeholder pensions and employers’ pensions (which could be final salary ones like the NHS, Police or Armed Forces schemes).
When dealing with a case involving pensions on divorce there are three possible solutions:
Pension sharingThis introduces the concept of pension credits and pension debits. When a pension sharing order is made by the court the pension scheme member loses the percentage required to be transferred (the pension debit), and the pension is reduced in value to take this into account. The ex-spouse (or partner) receives the percentage required to be transferred (the pension credit) and so gains a pension entitlement in his or her own right.
EarmarkingSince 1996 the Court has been able to earmark a proportion of the pension scheme on divorce, so that when the pensioner retires that element is paid directly to the ex-spouse/partner.
Pension offsettingGiving the ex-spouse/partner an asset with a value equivalent to that of the pension, for example the house or an investment portfolio.
Each option has its advantages and disadvantages, and it is often difficult to decide which would be the most suitable. That’s why it is vital to decide on your goals and objectives, and to ensure that you get the best advice available so you can make an informed choice.
We will work with you and your solicitor to assess the options and make recommendations for the most appropriate approach to pension planning on divorce, be it pension sharing, earmarking or offset, and how they should be implemented. To assist with the negotiations a report will be provided, setting out the calculations and the relevant options.
Once matters are agreed, separate advice is often needed on how to actually implement the judgment. We can provide financial advice to assist with rebuilding a pension, starting a new pension and ongoing pension provision, together with our full financial planning service.