Quite often, pensions are the most valuable assets of the marriage.
Those who divorce may not appreciate how a pension scheme works. It is therefore important to receive accurate advice from an experienced solicitor in order to avoid losing out on your financial entitlement to a pension.
The courts have wide ranging powers to make Pension Sharing orders and Pension Attachment orders. The pension member might also retain a pension intact in return for providing more liquid cash to the other spouse.
Pensions are not funds containing ready cash. As such, the court will not regard the Cash Equivalent Transfer Value obtained from the pension scheme as a cash fund equal to the value of the other available cash assets.
Pension Sharing order
These can be made within divorce proceedings and nullity proceedings commenced on or after 1 December 2000.
A pension credit is transferred from one pension pot to the other spouse’s pension pot, to create a new pension scheme. The pension credit is based upon the member’s Cash Equivalent Transfer Value (CETV) and the transfer will be expressed as a percentage of the value of the CETV and not a fixed amount.
The advantage of a Pension Sharing order is that the recipient of the pension credit does not lose those rights in the event of their former spouse’s death or remarriage.
It is possible to make a Pension Sharing order against the following arrangements:-
- Final salary schemes, including additional voluntary contributions (AVCs);
- Occupational money purchase schemes;
- Personal pension arrangements;
- Stakeholder pension arrangements;
- Retirement annuities;
- Small self-administered schemes;
- Funded unapproved retirement benefit schemes;
- Freestanding AVCs;
- Income withdrawal;
- Second state pensions; and
- Pensions in payment.
It is not possible to make a Pension sharing order against the following arrangements:
- Basic state pension;
- State graduated pension;
- Equivalent pension benefits where they represent the member’s only rights in the pension scheme;
- Spouse’s and dependent’s pensions in payment from a previous marriage;
- Death in service lump sums;
- Compensation benefits; or
- Benefits that already subject to a Pension Attachment order.
The spouse who receives the pension credit must choose whether he or she requires an internal or external transfer. An internal transfer provides the former spouse with their own pension rights in their own name within the same pension scheme as their former spouse but which are completely separate from the former spouse’s pension rights. An external transfer is when the pension credit is transferred out to an independent pension scheme.
Pension Attachment order
Attachment Orders are available in respect of:
- Pension benefits
- Tax free lump sum benefits at retirement
- Death in service benefits
They cannot be made against the following arrangements:
- Basic state pension
- The State graduated pension
- Additional pension derived from SERPS or a second state pension
They are not widely used as Pension Attachment orders cease upon the death of the member of the pension pot or the remarriage of the former spouse in receipt of the pension attachment. The recipient is not able to receive retirement income until the spouse with the pension pot retires.
All the assets of the marriage are taken into account, and the value of the pension assets are offset against the value of other assets, for example, the value of the former matrimonial home.
The spouse with the pension retains his pension intact and the other spouse receives a greater share of other assets of the marriage.
In general, the court will divide the pension between the parties in the same division as all other assets.
Pensions schemes operate in different ways, and you should consider taking advice from an independent financial adviser before sharing a pension to ensure that you receive good value for money.
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