Back in September 2018, Age UK reported that divorced women were losing out on valuable pension benefits. Seven out of ten couples do not discuss pensions before divorce, which suggests that men could also be losing out. Therefore, it is important to consider the question "what about my pension?" on divorce.
Many people find pensions difficult to understand. There are different types of schemes and plans available. You may have deferred pensions from your previous employers. Alternatively, you may have personal pensions that haven’t received contributions for a long time.
It is not unusual for pensions to make up a large proportion of the assets of a married couple. They are often second only to the marital home. However, they can be difficult to value. Depending on the type of scheme, the provider’s valuation may simplify the long-term benefits associated with the plan. It is not uncommon for an actuarial report to be requested to provide more detailed information where final salary, career average or other defined benefit schemes are involved.
Once you understand the value of each of the schemes belonging to both of you, there are three main ways of using your pensions in the financial arrangements:
You can simply offset one asset against another. For simplicity, consider an example:
You may have a savings plan with a value of £500,000 and your ex may have a pension with a value of £300,000. You may suggest that they keep their pension plan, but you have £400,000 from the savings and they would only receive £100,000.
There may be better ways to divide things than one spouse receiving all the liquid assets and the other all the retirement assets. This is even more important if neither are nearing or at retirement age. It is important to consider that both parties have access to the money they need immediately for a place to live etc and also for their retirement.
It is possible to have an attachment made to your pension for a certain percentage. For example, 25% of the pension benefits that you receive on retirement will be paid to your ex-spouse. These are used less commonly because there is no clean break in this option. The partner with the attachment order loses the opportunity to benefit from the pension flexibilities now available.
You can share your pension using a pension sharing order. Using this method, your ex would become entitled to a share in the value. The court would issue a pension sharing order for a specified percentage. The pension administrator or provider may offer them the opportunity to become a member of the scheme. However, they may not. They can sometimes transfer their share elsewhere. The point at which you take your benefits, the way in which you take them and the way you manage or invest your share is your decision. This is therefore a clean break way to divide pension benefits. It tends to be used in preference to an attachment order.
Pensions is a complex area. Therefore it would be advisable to speak to a qualified professional before finally agreeing the way in which you plan to split your pension assets with your ex. If you would like more information or would like to speak to us about your own situation, please contact me on 07975 922766 or at Tamsin@smartdivorce.co.uk.
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Tamsin Caine is a Chartered Financial Planner at Smart Divorce. She specialises in working with separating or divorcing clients to help them to understand how to divide their finances to move forward with their lives. If you would like to speak to Tamsin or find out more about how she can help, email her at Tamsin@smartdivorce.co.uk.