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Divorce and pension sharing advice

If you are going through a divorce and looking for financial advice from an IFA, an Independent Financial Adviser about pensions and pension sharing on divorce or your investments contact us.

It is not possible to assign (legally share) pension rights without the involvement of the court and the court will seek to share your assets fairly between you.  You should get professional legal as well as financial advice about your pension (or your spouse’s pension) when you divorce.

Generally one assumes that the largest asset of a family is the home, but pensions can be as valuable and sometimes are even more valuable.  It is, therefore, important that any divorce agreement addresses the division of pensions, as a court will look to take all pensions into account in its calculations and will assess all the assets of the marriage and try to divide them on a fair basis.

How do you work out the value of a pension on divorce?

The capital value of a pension can be higher than one expects especially when there is a defined benefit pension. A defined benefit pension will calculate the accrued income value and times this by 20 to give a capital value. Understanding the accrued pension will depend on whether the scheme is a 60ths scheme or an 80ths scheme and whether it is a final salary scheme or a career average scheme and will then depend on the number of years in service and the current salary.

Assuming it is a final salary scheme, with 25 years service, on a 60th basis, and a current salary of £35,000 the calculation would be as follows:25/60 X £35,000 = £14,583 accrued income X 20 = £291,660 Capital Value.

The Capital value of a money purchase pension, where there is simply a pot of money invested, will be taken at its face value.  This value would then be added to the value of the family home plus other pensions plus other investments to give a value that the courts will decide a fair share on. They will also consider the income available position of each partner as part of their deliberation.

How are pensions shared?

There are a number of ways in which a court will direct pension assets to be shared. Although in recent years “pension sharing” tends to be the preferred route as it achieves the cleanest break. Through the Court, a divorcing couple can choose:

  • Pension Offsetting: balance the pension rights against another asset, such as the home
  • Pension Earmarking: When one party’s pension eventually comes into payment, a portion of it will be paid to the other party
  • Pension Sharing: split the pension at the time of the divorce to give both parties their own pension pot for the future.

The court will need to know what you and your former spouse’s pensions are approximately worth.  This will mean that both of you will need to ask your pension providers for valuations of your own pension pots.

Pension Offsetting

All the couple’s assets are taken into account and pension benefits are offset against other assets.  The party with the pension rights keeps them for him/herself and the other party is given the benefit of other assets, such as the right to own the home or a share of the home and the right to live in it. It can be difficult to achieve a fair share of a couple’s total assets by offsetting a pension pot against other assets.  This may be because the pension is by far the greater in value.  Also, pension values tend to fluctuate more than, say, property values.  If it turns out to be difficult to achieve offsetting, one or other of the alternative bases is then likely to be used.
Pension Earmarking

The pension scheme, on instruction from the Court, attaches an order of specified amount of the member’s pension and/or lump sum.  The amount is specified at the time of the divorce but the payment is made when the spouse with the pension pot retires or when they die.  Earmarking has not proved entirely satisfactory in practice, as it does not enable the ex-spouse to receive retirement income until the spouse retires which could be delayed til very late in life, or lost on death.  Benefits will also be lost on remarriage of the ex-spouse.
Pension sharing

The pension is given a value based on a Cash Equivalent Transfer Value (CETV).  A percentage of the CETV will be agreed or given by the courts and will be immediately separated from the member's pension.  This will usually need moving or transferring to a new pension in the awarded spouses name.  This achieves a ‘clean break’ as each spouse receives a pension in his/her own right.

Defined benefit pension schemes

Generally a public sector final salary scheme pension will usually allow the ex-spouse to become a member of the scheme in their own right, however, this may not be on the same basis as the original member and therefore you should look carefully at what is being offered.   Non-public sector final salary schemes will usually expect a transfer out of the ex-spouses scheme. 

The CETV value of a final salary scheme pension can be surprisingly large as the CETV value will generally be based on 20 x the current accrued income value. 

Defined contribution pension schemes

Personal pensions or defined contribution schemes will usually expect a transfer out of the ex-spouses scheme.  The value of a defined contribution pension will generally be the current value of the fund.

We are an Independent Financial Advice firm (IFA) in Bingham and Woodthorpe Nottingham offering financial advice and mortgage advice in the surrounding areas of Newark, Grantham, Lincoln, Sheffield, Leicester and Derby.  Our aim is to offer clear, simple, sensible advice and an excellent, open and shared ongoing process of advice and life planning, with very competitive and transparent fees and a highly personalised service to all our clients across Nottingham and the areas surrounding Nottinghamshire and across the East Midlands.

Our advice includes Pensions, Investments, Mortgages, Life Insurance, Critical Illness, Income Protection, Private Medical Insurance, Equity Release, Long term care

Our Independent Financial Advisers are always happy to meet at our clients' preferred location and time and to have detailed initial discussions with no obligation.

Please contact us by calling 0115 967 0888 or email us at This email address is being protected from spambots. You need JavaScript enabled to view it.
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