Pension sharing is one of the options available on divorce or the dissolution of a civil partnership. It provides a clean break between parties as the pension assets are split immediately. This means that each party can decide what to do with their share independently.
How does it work?
The Court will issue a pension sharing order (PSO) which states how much of the pension the ex-spouse or ex-partner is entitled to receive.
The amount is expressed as a percentage of the transfer value(s) of the pension(s) that are to be split. In Scotland, it can also be expressed as an amount.
For example, if the value of the pension was £100,000, a 50% share would give each person £50,000.
Each final transfer value is worked out the day before the pension sharing order comes into effect.
If you’re thinking about choosing a pension sharing order, but would like some more guidance about this and other options available to you, our team can help.
Find out more in our guide Divorce or dissolution: how we can help with your pension
Pros and cons of pension sharing
Here are some things to consider with this option:
Pros
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It achieves a clean break.
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It can help to make sure both parties have pension provision in retirement.
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Remarriage, death or other change in circumstances will not affect the order.
Cons
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One person’s future lump sum and income might be reduced.
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There’ll usually be a fee to pay to the provider to make the split.
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It might be difficult to split some pensions, such as a Small Self-Administered Scheme (SSAS).
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For high earners, the pension credit could affect the recipient’s lifetime allowance by increasing the value of their pension provision. They should seek advice on the tax implications.
The part that’s awarded to the ex-spouse or partner is called a pension credit.
In some cases, you might be able to join the original pension scheme.
You can, and might have to, transfer the share to an existing or new pension scheme that’s able to accept the transfer.
You might need the help of a regulated financial adviser to arrange a transfer.
Find out more in our guide Choosing a financial adviser
It is possible that the transfer value will change between receiving the quote and when the pension scheme or pension provider applies the pension sharing order. The transfer value might go up or down.
The original pension scheme might charge for the calculation and/or the administration of the sharing order.
What are the timelines?
If a pension is subject to a pension sharing order, the pension scheme or pension provider has up to four months to implement or carry out the order from the time when they receive all the necessary information. However, they should do it within a reasonable timeframe.
It might be useful to keep in mind that this four-month timeframe will only begin when the scheme has everything they need to implement the pension sharing order.
If there’s a delay, it might be because the scheme is waiting for information from a third party who is not subject to a time limit, for example a lawyer, financial adviser or your ex-spouse or ex-civil partner.
Whether you are the scheme member, or you are receiving a share of your ex-spouse or ex-civil partner’s pension, when the pension sharing order has been implemented, you should check your new pension benefits to ensure that the right amount has been shared. If you have any queries, contact your pension provider who can review your pension benefits.
When the pension sharing order has been implemented, you can ask your pension provider, or pension scheme, for a statement of your benefits. Most schemes will automatically send you a benefit statement each year.
You can check the benefit statement regularly. And, when you take your pension – either when you retire or if you transfer to another pension scheme – it’s worth checking again.
If you believe that a mistake has been made when applying your pension sharing order, you can contact us, and we might be able to help.
What about pensions that are already paying out?
Pension sharing is also available from schemes where pensions are already being taken, although the process is more complicated and the fees might be higher.
What if there is an issue in calculating the transfer value?
Under a pension sharing order, all pension benefits must be given a value. This is known as a cash equivalent transfer value (CETV).
Calculating a CETV can be complicated and sometimes calculations can go wrong.
If you believe that there’s been a mistake in the calculation, it’s important to act quickly. This is because when the pension sharing order is enforced, you might need to get legal advice and face costs to have the value recalculated retrospectively.
If the CETV calculation is wrong, this might lead to an under or over payment for the member, or their ex-spouse or ex-civil partner.
By law, if the scheme or provider has made a mistake, they must put things right. In cases where there has been an underpayment, you might receive extra funds. However, if you have received an overpayment, you’ll usually have to pay it back.
