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After property, pensions are often the next most substantial asset, and it is important that they are properly considered to effectively plan for the future.
There are many different types of pension schemes and benefits, although the most common is an occupational pension. This is where a contribution is made to a pension scheme via your employment income, and your employer will also make contributions. Other types of pensions include self-investment personal pensions (SIPPs), defined benefit pensions and defined contribution pensions to name a few.
To ascertain the value of your pension when going through a divorce or dissolution of a civil partnership, you should approach your pension provider and request a Cash Equivalent Transfer Value (CETV) or Cash Equivalent Value (CEV).
The Court will consider not only a division of the capital assets such as any properties or savings etc, but also retirement assets such as pensions.
With a long marriage or civil partnership, there is an expectation that all assets, including pensions, are divided equally between spouses or civil partners. However, there are many factors the Court will consider when deciding whether pensions ought to be shared equally.
An equal sharing of pension rights may not provide a fair result due to respective needs and ages, the length of the marriage or civil partnership, or because the pension rights are not assets of the marriage or civil partnership.
Consideration also needs to be given to whether it is proportionate for pensions to be shared – for example, do the costs of a pension share outweigh the benefits?
Whether pensions are split equally or unequally will depend on the facts of each case. Ultimately, the outcome will depend on what has been agreed between spouses or civil parners, and/or ordered by the Court.
There are 3 options available when sharing pensions. These are as follows:
This is the process of transferring a percentage of one spouse’s or civil partner’s pension (the member) to the other spouse or civil partner (the non-member). Depending on the options available in relation to the scheme in question, the non-member spouse or civil partner will either become a member of the scheme in their own right (internal transfer) or transfer their share into another scheme (external transfer).
Pension sharing is only available where the Court will make a final decree/order in divorce or dissolution of the civil partnership.
Pension attachment is essentially a form of maintenance. The pension provision will remain in the member’s name and will not be transferred to the non-member. However, upon the non-member attaining retirement age, the pension will pay out a part or all of the member’s pension provision to the non-member. This payout can be made via regular payments, a lump sum or, a combination of the two.
Pension attachment orders are far less common than pension sharing orders.
Offsetting is the process where one spouse or civil partner ‘offsets’ their interest in the other’s pension provision and in return receives more from another asset. It is important to note that this is not always a like-for-like sum and often, the offsetting value is less than the sum that would be received by way of pension sharing.
Offsetting does not involve the court making any pension orders.
To consider each option thoroughly, it may be appropriate to instruct a pension expert to prepare an actuarial report. The expert will calculate what pension share/attachment is required to achieve a fair settlement (more often than not this will involve complex calculations to determine what percentage must be shared to result in equality of pension income upon retirement) and/or what the relevant offsetting sum might be.
These reports can be costly, but it is often a cost worth incurring as it is important to understand the impact of each option in relation to the specific facts of the case.
A pension sharing order (or pension attachment order) can only be achieved by the making of a Court order. It cannot be achieved in any other way, even if there is a mutual agreement between the people getting divorced or dissolving a civil partnership.
The terms of the pension share will be incorporated into a financial order together with a supporting pension sharing annex. The pension sharing order can only be specified in percentage terms and cannot be expressed as a set sum.
A pension share cannot come into effect until 28 days have passed from the date of the Final Financial Order and there is a Decree Absolute or Final Divorce or Dissolution Order.
The pension provider must implement the pension share within 4 months of receipt of the instruction and all required documentation, information and payment of any implementation fee.
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