A Survey by ‘Which?’, of its members in November 2021 uncovered that only 15% of divorcing couples included pensions in their divorce settlement and 53% said that pensions had not even been discussed. 

Now, it was a small survey of only 453 people, however, if we also take into account the fact that only around a third of divorcing couples seek a financial order (by consent order otherwise) dealing with their respective claims and that a order is a must if the pension is to be shared or earmarked, the actual number of couples failing to give adequate consideration to pensions is probably significantly higher.

Pensions - the most valuable asset held by divorcing couples

Pensions represent one of if not, the most valuable asset held by divorcing couples. It is not the same as a house or savings because a pension is intended to provide an income on retirement rather than meet immediate needs but they can be hugely valuable and mean the difference between being reliant on a state pension and whatever benefits might be available or living in relative comfort.

In the event that pensions are not taken into account properly, this is likely to have a disproportionate impact on women. They are statistically still likely to have around 1/10th of the amount of their husbands pension provision as a result of giving up work or working part time to look after children. To further compound matters, they may also find their ability to build a pension post divorce constrained by an earning capacity that still has to factor in child care arrangements or reflects that earlier career break.

When considering pensions on divorce there are three main approaches that can be considered either in isolation or combination.

Pension sharing – This is an order which involves a pension fund being split by a percentage. The percentage shared, is transferred to a pension in the other spouse's name. This may be approached by reference to the capital values of the pension funds though this is not always appropriate and often consideration is instead given to what share of the pension is required so as to provide the parties with equal pension income in retirement.

Pension earmarking – This is an order which involves the pension fund remaining whole but the scheme administrators being ordered to split a lump sum payment payable on retirement and/or retirement income between the spouses.

Pension offsetting – This option is not an order but allows any disparity in pension provision between the spouses to be dealt with in the division of the non pension assets.

The appropriate order to be made in any given case requires careful consideration as there are often many ways to achieve a fair result. Various issues can arise such as whether pensions built up prior to the marriage or post separation should be taken into account, how different types of pension providing different benefits should be approached and how to address significant age gaps or different retirement ages. 

When offsetting is considered, it is very important to understand that the value of the scheme (CEV) provided by the scheme administrators is not £ for £ the same as non pension assets due to the tax treat and illiquidity of pension assets. Very often a Pension On Divorce Expert (PODE) will need to be instructed to advise as to the options and the impact of possible approaches.

No one likes to think about getting old. This is probably the main reason why people delay making wills or setting up pensions in the first place and is also probably at least part of the reason why many divorcing couples are failing to consider pensions. However, retirement income needs are just as important as housing and other immediate capital needs and absolutely must be considered.

At Birkett Long LLP, our specialist family solicitors understand that Pensions and the whole issue of resolving the financial aspects of divorce can be daunting. However, our experience and expertise mean that we can guide you through each and every stage so that you can make informed decisions to achieve the best outcome for you. 

For further advice and a free initial no obligation chat, I can be contacted on 01206 216305 or alternatively, complete our enquiry form and one of our specialist family solicitors will contact you. 

If you require any more information on this topic please contact Karen via Karen.Johnson@birkettlong.co.uk or call 01206 217305.