Divorce and dividing pensions

21 July 2015

Your pension will probably be your biggest asset after your home. All the money you’ve saved into it (except for your basic State Pension) will be taken into account when your assets are divided. It can be a complicated process to work out how to divide your pension fairly. This guide explains more about what you need to know.

How to work out the value of your pension

Over the years you may have paid into a number of workplace and personal pension schemes, as well as the additional State Pension. You’ll need to track them all down and ask for a valuation for each one.

The valuation will be based on what your pension would be worth if you moved it elsewhere. Typically, the total will be below the current fund value because any charges or penalties for transferring out of the scheme will be included.

If you live in England, Northern Ireland or Wales ask your provider for a statement that gives you the cash equivalent transfer value.

If you live in Scotland, your pension value will be based on what was paid in after you married or entered into a civil partnership, up to the date of separation.

Getting a valuation for a defined contribution or money purchase pension is relatively straightforward. However, working out the value of a final salary or other salary-related schemes can be complicated. If you have this type of pension, it may be worth getting help from a specialist financial adviser or an actuary.

How much does divorce cost?

How to split your pension

Once you’ve got the value of all your pensions you need to think about how you will divide them between you. There are five main options and you should take legal or financial advice to work out which one is best for both of you.

You will usually need to apply to the court so that it can set out legally what the arrangement is and when it will start.

Pension sharing

You are entitled to a share of one or more of your ex’s pensions. You can either join their scheme or a proportion of its value is transferred to a scheme in your name.

Pension offsetting

The value of the pension is weighed against another asset, such as the family home. If you choose this option, your ex could be awarded a larger share of the property in return for you keeping your pension. However, they will have to make their own retirement arrangements. If they’re close to retirement and haven’t made any pension arrangements of their own, they may not agree to offsetting.

Pension earmarking

Pension earmarking means one of you receives a lump sum or income from the other person’s pension when they start to draw on it. However, the pension holder may decide not to take their pension straight away or carry on working, leaving the other person without a retirement income. If you’re dependent on pension earmarking and you remarry, you will lose your right to carry on receiving the pension and if your ex dies, your income is likely to stop.

Deferred lump sum

You receive a lump sum when the pension holder retires. This option is not available in Scotland.

Deferred pension sharing

If your ex is below the age at which they can receive a pension and you are already receiving one, you can ask the court to make a Deferred Pension Sharing Order. This allows you to receive an unreduced pension until they reach the age at which they can start to receive a pension too. This option is not available in Scotland.

Find out more about protecting your assets when you divorce.

What if you have retired?

You can still split pensions if your ex has already retired, but it won’t be possible for a tax free lump sum to be taken from their pension – even if they took a lump sum.

All information accurate at time of publication

This article is provided by the Money Advice Service.

Money Advice Service

The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.