When a marriage breaks down and parties divorce, it’s important not to overlook the sharing of pensions which can often be a significant asset to the parties in the same way as equity in property or savings. 

In November 2023 a report was published following a study by the Nuffield Foundation and Bristol University which reported that:

  • 38% of divorcees felt their knowledge of their ex-spouses finances during the marriage was not good.
  • 37% did not know the value of their own pension and nearly a quarter (23%) did not know what kind of employer pension scheme they were enrolled in (i.e Defined Benefit or Defined Contribution scheme).
  • Only 11% of divorcees with a pension yet to be drawn had made an arrangement for pension sharing.

Following the report, policy makers are being encouraged to focus their attention on how to enable couples to take full account of all their assets and their future needs when deciding on an outcome.  This also highlights the importance of parties exchanging full disclosure in divorce proceedings to ensure they can take the appropriate legal and financial advice.

The Courts in England and Wales have the power to make a Pension Sharing Order, however caselaw has sparked continuous debate on how pensions on divorce should be approached. The Pensions Advisory Group (PAG) have published two reports now, and the short answer is that there is no “one size fits all” when it comes to pensions and how these should be shared.

The first step is to ensure that the parties have obtained all relevant information about their pensions. It is also important to reflect on previous employments and consider whether there are any small pension pots that you may have forgotten about. If necessary, pension tracing services can be instructed.

Once the value of the pensions are known, often there needs to be a report from a pension Actuary to review the capital and income benefits of all the parties schemes and to advise on the mechanics of those pensions can be fairly shared.  This is usually done through a joint instruction to an Actuary.  Parties may also wish to consider options for “offsetting” i.e one party receiving more capital in lieu of part or all a pension claim and the Actuary can also provide guidance on this.

There can often be a delay in obtaining pension values.  There has in recent years been embargos n pension values being provided for public sector schemes due to changes in the way in which these are being calculated.  It is therefore essential for parties to request their pension values at the earliest opportunity.

When parties divorce, there needs to be careful consideration of their capital and income needs, including future needs in retirement to enable parties to make informed decisions regarding the division of assets.  To make an informed decision, they need to be able to understand the value of a pension and the available future capital and income from the pension to ensure they can properly consider whether the proposed division of assets will enable them to meet their future income needs.

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