Pension Sharing on Divorce

For many people, the pension may be one of the most valuable assets, after the family home. There are several ways to split the pension on divorce or dissolution of civil partnership, so it’s worth understanding your options before deciding what’s best for you.

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Pension Sharing on Divorce

Pensions form part of the assets to be divided between parties in separation and divorce. The starting point is to ask the Pension Provider to calculate the Cash Equivalent Transfer Value (CETV) of the pension rights. This will amount to a capital value and can often be one of the highest value assets. The situation becomes more complex for a number of reasons:

  • The pension valuation should only be taken from the date of marriage to date of separation. The pension provider may not supply this precise calculation. A fraction needs to be applied to the figure based on the number of days of the marriage divided by the number of days of the pension period. This is called the apportionment of pension.
  • Pensions already in payment can have a CETV, often referred to as a Pensioner Equivalent Transfer Value (PETV).
  • An actuary can be hired to calculate valuations in some cases.

So what happens to this pension figure?

It is listed alongside other assets of matrimonial property. When the matrimonial property is divided one party may keep the full pension or there can be a pension transfer of part of that pension. Pension sharing is complex because a Qualifying Agreement needs to be drawn up between the parties in a format approved by the Pension Provider. A transfer can only be implemented after a decree of divorce is granted. The Pension Provider may make a significant charge for implementing a pension sharing order.

The additional state pension can also have a value. The state second pension – which is abbreviated to S2P – is an earnings-related scheme paid on top of your basic state pension. It used to be known as the State Earnings Related Pension Scheme (SERPS). An application can be made to DWP for a SERPS forecast on divorce.

A word of warning!

It is important to be accurate with pension valuations eg applying the wrong date can materially alter the valuation. We can assist with the valuation process, so please get in touch with us.

Any questions?

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