Info & Advice

How is the value of my pension decided when we divorce or separate?

Request a Free Consultation with a Solicitor

One of the most important matrimonial assets after the family home is likely to be the pension of either or both parties, and being able to accurately obtain a pension valuation is crucial to achieving a fair outcome in the financial settlement. The aim of this article is to explain how the value of a pension is decided when you divorce or separate.

How do I find out the value of my pension?

Most people are unaware of the value of their pension unless they’ve recently received a yearly pension statement from their provider, or they are nearing retirement age. Even then, the annual statement tends to show the amount of pension income that will be paid on retirement, rather than its current value. And it is this figure that is needed to determine how much needs to be added into the matrimonial pot.

In order to calculate the pension’s value for divorce purposes, the “cash equivalent transfer value” (CETV) is required. This is essentially the amount the existing pension provider would need to transfer to another pension provider if a transfer was requested as part of a pension sharing order.

In the case of defined contribution, money purchase or personal pensions, an up-to-date CETV can be requested from the pension provider. If the pension is a final salary or other salary related scheme, although a CETV can be requested, it may not provide a particularly accurate valuation, and an actuary may be required.

It is important to bear in mind that the majority of pension providers will charge a fee to provide a CETV, and some can be rather expensive.

Who is entitled to a share of the pension following separation?

The rules for sharing a private pension differ depending on whether or not you were married, in a civil partnership, or were unmarried and cohabiting with a partner. If you are married or in a civil partnership and divorce or go through a dissolution, you might be entitled to some, or all, of your ex’s pension. This will depend on what is agreed between you or ordered by the court.

If you are married or in a civil partnership and separate without legally divorcing or dissolving the civil partnership, you will not be able to formally share your ex’s pension. However, you may still be entitled to a spouse’s lump sum when they die if you are still married/in a civil partnership at that time. This depends on whether or not they have nominated another person as a beneficiary of the pension or within a will.

If you have never been married or in a civil partnership and separate from your partner, neither party is entitled to a share of the other’s pension.

How are state pensions dealt with on divorce or separation?

If you get divorced or end a civil partnership, the court can treat the state pension as a matrimonial asset which may be subject to a pension sharing order. What part of the pension can be shared depends on when you get to state pension age and whether you get the old or new state pension.

If you reached state pension age before 6th April 2016, your Additional State Pension could be shared. This is the amount paid on top of any basic state pension and graduated retirement benefit and is based on earnings.

For those who get to state pension age on or after 6th April 2016, then the Protected Payment could be shared. This is the amount paid on top of the standard weekly rate of the new state pension.

To obtain a valuation of your state pension, you will need to complete an application for valuation form. This will then be used to work out a Cash Equivalent Value. If the court makes a pension sharing order, the amount that you receive may increase or decrease depending on the court’s decision.

How can I protect my pension when I divorce?

If you have been the primary earner during the marriage, you will probably have the largest pension savings pot, so your goal may be to retain as much of this as you can. On the other hand, if you are the lower earner, or have focussed on raising the family, then your pension may be much less or even non-existent. Therefore, in the divorce settlement, your aim will be to secure sufficient pension assets to support you in later life.

In divorce, pensions are considered alongside other matrimonial assets with the ultimate aim being to achieve a result that is fair and equitable. How pensions are shared, or even if they are shared, depends on the unique facts of each case, taking into consideration the factors within section 25 of the Matrimonial Causes Act 1973 with a starting point of 50:50 division.

What are the options to split a pension on divorce?

There are three main options available to share a pension on divorce. These are:

  • Pension Sharing Order

This type of order instructs the pension provider to share a specified percentage from the fund and send it to a fund in the receiving party’s name. The new pension pot will be independent from the old one, so each party will own their own pension fund and can manage it as they wish.

  • Off-Setting

Here, one party agrees to keep their pension, or a percentage of it, whilst the other party retains more of the other matrimonial assets. This tends to be the family home or substantial savings. If this option is on the table, you should think ahead to your retirement needs. Will an offset cover future retirement income requirements, for example?

  • Earmarking

This is where an agreed percentage of future pension payments are made when the pension holder retires, and they retain the full pension fund. This option is rarely used these days, because they cannot continue if the pension holder remarries, or ceases if the potential recipient dies. They do not allow a clean break financially either, which most people are keen to achieve.

Related Articles

Load More

Podcast: Listen Now