Going through a divorce is a difficult time for anybody. Nowadays many divorce settlements now include a Pension Sharing Order. This will involve receiving a percentage of your spouse’s pensions benefits.
On receipt of this order, the monies will have to be moved away from the ex-partners pension scheme into a pension plan you already hold or a new plan.
Our advisers can talk you through the process and if needs be, help you look at a new pension plan for the benefits awarded to you in the settlement.
Our advisers will take into account your personal circumstances which may have changed significantly after a divorce along with your financial objectives and ensure any new arrangement suits your current needs along with your retirement objectives.
What is a Pension Sharing Order?
A Pension Sharing Order is the legal way of dividing up a pension between a couple after a divorce or dissolution of a Civil Partnership.
When going through a divorce, one of the biggest challenges can be dividing the assets you have as a couple such as property and money.
After your family home pensions are likely to be the most valuable asset you own when you come to agreeing on a financial settlement.
Pension sharing on divorce allows couples who are divorcing or dissolving a civil partnership to make a clean break order, dividing up any pensions between them or creating a new pension for the spouse.
How does Pension Sharing Work?
During divorce procedures, the assets of the marriage will be assessed so that they can be divided between the couple.
Pension sharing now means that pensions are included in the total value of marital assets.
It allows one person to get a percentage of the total value of the other persons pension.
That money is called a pension credit and can be either transferred into an existing pension, a new pension.
Finding out how much your pension is worth
The court will take into account any pensions that you or your spouse may have.
This can include state pensions, schemes offered by an employer, or private pension plans.
Before pension sharing can be set up, you must establish how much any pensions held are worth. You should include any:
- Pensions you have through an employer
- Additional State pension (this means any pension from the State Pension scheme in addition to your basic State Pension, ie. that you earned while in employment. The basic State Pension cannot currently be split in a pension sharing scheme.)
- Personal pension schemes
It must be the person who holds the pension who applies for a pension valuation.
Valuing Workplace pensions
Workplace pensions can be ‘defined contribution’, meaning that you pay a set amount into a pension pot.
In this case, you should look at your annual statement, which gives you a ‘transfer value’ for your pension.
If instead, you have a final salary pension scheme, which is determined by how much you earn, you may need to consult a financial adviser for a valuation.
This is because your calculation will be more complicated, based on how long you have paid into the pension for and how much you are paid.
Public sector pensions can be a little bit more complicated, so we would advise talking to the scheme first about obtaining the CETV and a statement of benefits.
All schemes will charge fees to provide these valuations and they can be quite high.
Valuing Personal Pensions
To value a personal pension, you should look at your latest annual statement.
This will show what your pension is worth and give you a ‘transfer value’, which is the figure the court will use to assess pension sharing.
Applying for pension sharing orders
To agree on a division of the pension pot, you need to apply to a court for a pension sharing order as part of your divorce.
Once your marital assets have been assessed, the court will award a percentage of one party’s pension value to the other party, which is then used to set up a separate pension.
This separate pension may either be a scheme you are already paying into, or a new pension scheme.
It is advisable to speak to an independent financial adviser about the best way to apportion the pension credit.
The pension trustees will also charge you to implement the pension share and this can cost thousands of pounds.
Please find out how much they will charge before proceeding and consider splitting the charges between you.
Are state pensions included in pension sharing?
Although the basic State Pension is not included, you may be able to claim a basic state pension through your ex-partner’s national insurance.
This would only apply to the years you were together as a couple, and would not affect their own State Pension.
If you get married again (or enter another civil partnership), before you get to the official State Pension age, you will then lose this entitlement.
Contact our expert advisers today