Divorce often brings significant financial challenges, and one of the most complex yet critical aspects is pension sharing. At Lund Bennett Family Law, we recognise the importance of safeguarding your financial future, particularly in planning for retirement.
What Is Pension Sharing?
Pension sharing is a legal framework that enables divorcing couples to divide pension assets as part of their financial settlement. Introduced in December 2000, this mechanism offers a “clean break,” granting both parties independent control over their share of the pension.
According to the Office for National Statistics, 80,057 divorces were granted in England and Wales in 2022, many of which likely involved pension assets—emphasising the importance of addressing this issue in settlements.
How Pension Sharing Works
A pension sharing order, issued by a court, allocates a percentage of one spouse’s pension to the other. This results in a “pension credit” for the receiving spouse and a “pension debit” for the original pension holder.
As highlighted by Hitchings et al. (2013), the requirement for a court order ensures fairness and enforceability in dividing these assets, protecting both parties’ interests.
Why Pensions Matter in Divorce Settlements
Pensions are often one of the most valuable assets in a marriage, sometimes exceeding the worth of the family home. However, they are frequently overlooked or undervalued during divorce proceedings.
Research by the Pensions Policy Institute (2019) found that divorced women often have significantly lower pension wealth than their married counterparts, underscoring the need to consider pensions in divorce settlements to secure long-term financial stability.
Key Factors in Pension Sharing
When navigating pension sharing, it’s essential to consider:
- Valuation: Complex pension schemes, such as final salary pensions, may require input from a pension actuary.
- Timing: Timing strategies can influence the effectiveness of your settlement.
- Tax Implications: Transfers may have tax consequences, particularly concerning lifetime allowance limits.
- Implementation: Pension schemes usually take 3-4 months to implement a pension sharing order.
- Future Needs: Negotiations should reflect your anticipated retirement lifestyle and financial goals.
Alternatives to Pension Sharing
While pension sharing is often the most equitable solution, other options include:
- Pension Offsetting: Trading the value of the pension against other marital assets.
- Pension Attachment Orders: Directing a portion of the pension income to the ex-spouse upon retirement.
Each approach has its advantages and limitations, and the best option will depend on your circumstances.
Addressing Challenges in Pension Sharing
Pension sharing can become especially complicated when dealing with:
- Multiple pension schemes
- International pensions
- Public sector pensions
- Self-invested personal pensions (SIPPs)
Research by Woodward and Sefton (2014) highlights the difficulties in achieving fair settlements in complex cases. At Lund Bennett Family Law, our experienced divorce and separation team is here to guide you through the process and help secure the best possible outcome.