Pension Sharing Order

Getting divorced is a wildly unsettling time for everyone involved, in December 2000 divorce pension sharing was introduced so that pensions were included with other assets like property and cash in the bank.

A pension sharing order can only be obtained through a court order. It sets out the exact percentage of your pension that you and your ex-spouse will be awarded as a result of divorce.

Pensions are different to other material assets because they can be can be split between ex-partners unlike the family home which must be transferred to one spouse or the other.

There’s a lot for you to consider when going through a pension sharing order, how its calculated, what will happen to your pension benefits and what can happen if the orders breached. In this guide we cover everything you need to know.

What type of pensions can be shared with a Pension Sharing Order

The first consideration you’ll need to make is whether or not the pension arrangement in question can be subject to a Pension Sharing Order as a result of a breakdown in your civil partnership or marriage.

Type of pension schemes that can be subject to a pension sharing order	Types of pension schemes that are not subject to a pension sharing order
Occupational pension scheme, including additional voluntary contributions	Basic State Pension
Personal pension schemes	New State Pension
Stakeholder pension schemes	Pensions already subject to an earmarking or sharing order
Retirement annuity contracts	Pensions the member is receiving as a spouse, civil partner or dependant
Statutory Pension Schemes	Schemes in which the only benefits are equivalent pension benefits
Free-standing additional voluntary contributions (AVCs)
Contracted-out benefits, State Second Pension (S2P) and State Earnings Related Pension (SERPS)
Employer financed retirement benefit schemes – unapproved schemes
S.32 Policies

What are the different types of pension sharing orders?

There a number of ways a pension sharing order may be enacted. These are:

• Earmarking – means that some or all of your pension is earmarked to be paid to one party when the other starts to draw pension assets. With earmarking there is no legal transfer of ownership. Importantly, if the original member never takes benefits the receiving party will never get them either.Earmarking orders are taxed differently to other sharing orders. e.g. DB income is taxed at the original members rate

• Sharing. With pension sharing you make a formal agreement to divide your pension assets when you get divorced. The courts will decide on the exact percentages each party receives, with pension sharing the person receiving the money can transfer to a new provider or become a part of the existing pension scheme.
• Offsetting. Involves valuing all of the other assets and offsetting the value of the pension against those. For example, one spouse keeps the house whilst the other keeps the pension of equivalent value.

How is a pension sharing order calculated?

If the Court orders the implementation of a Pension Sharing Order, you, as a pension scheme member, will have a deduction made from your pension beginning on the effective date of the order to contribute their Cash Equivalent Value (CEV) to a qualifying pension arrangemen, typically a Cash Equivalent Transfer Value.

What happens when a pension sharing order is implemented?

When a pension sharing order is mandated and finalised by the courts, it will state how much pension should be transferred and to which ex-partner. This is called the cash equivalent transfer value.

Crucially there are important considerations that the court cannot deal with, including:

1. Should the receiving partner stick with the existing pension arrangement or transfer to a different pension provider.
2. The court order will make no mention of pension and retirement considerations the receiving partner should take.
3. There will also be no advice given on how the pension money should be drawn upon

For all of those considerations it is best to speak to an independent financial advisor.

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Who pays pension sharing order fees?

If you don’t agree on how the fees will be paid, the person who owns the pension will have to pay the pension sharing order fees.

Pension sharing order costs

Pension sharing order costs will vary by pension provider, typically there are charges levied as the pension sharing order progresses. These may include:

Step	Actions Taken	Potential Cost	Chareable
1	Produce an equivalent transfer value CETV, (active or deferred) or (pension in payment)	0 – £3,000	At any time
2	Provision of additional information	£2,500 – £10,000	At any time
3	Processing a pension sharing order for internal or external transfer	£2,500 – £10,000	At any time
4	Processing a pension order already in payment (including recalculating CETV)	0 – £3,000	At any time

This is intended for illustration purposes only, steps and charges will vary depending on the pension fund provider

How long does a pension sharing order last?

The pension sharing order may be implemented on any day, chosen by the trustees, within the implementation period. This will be known as the Valuation Day the pension scheme or pension provider then has up to four months to enforce the order.

Some types of pension sharing order can lapse if the receiving partner remarries.

What happens if a pension is already paying out

If a pension scheme has started paying out then it is still possible to go through the pension sharing order process but it’s likely that the fees will be higher as the process is more complicated than usual.

What happens if a pension sharing order is breached?

When a pension sharing order is breached you must establish why the breach occurred and who caused it. Its essential the the process is resumed in the fastest and fairest way possible.

When a breach occurs there’s several things that will need to happen:

1. The cash equivalent value needs to be recalculated. This may lead to a re-negotiation process and a delay in sharing other assets.
2. Determine who is responsible for ensuring the relevant actions are taken with regard the pension sharing order – It could be the ex-partner receiving or the one sharing the retirement benefits that needs to take action. It could also be down to the trustees and administrators.
3. The aggrieved party should lodge a complaint the at-fault party
4. If the complaint is to a pension provider/administrator or pension trustees, a formal complaints process must be observed
5. If the complaint is to a solicitor, a formal complaints process must be in place which allows the solicitor up to 8 weeks to provide a final response.
6. If the aggrieved party is not happy with that response, they can refer their complaint to the Legal Ombudsman (within 6 months of the final response).

If the receiving spouse/civil partner is at fault, then all they can do is go back to their solicitor and ask for it be completed but they will be liable for any costs involved in doing this.

Failure to implement pension sharing orders

If the pension sharing order is not implemented the money will remain within the merged pension scheme and will still be available to your ex-partner.

Failure to implement pension sharing order is a serious problem and may render the pension company legally liable. After the process has been finalised, it is a statutory requirement that the parties are informed within 21 days

Pension Sharing Order lifetime allowance

Pension sharing orders effective on or after 6 April 2006 count towards the member’s ex-spouse’s/civil partner’s lifetime allowance only.

If the order affected pension benefits that were already in payment, the member’s ex-spouse/civil partner can apply for an increase to their own lifetime allowance

Pension sharing order can I take a lump sum?

If you receive a pension credit as a result of the pension sharing process you will not benefit from a tax free lump sum

Pension sharing order after Decree Absolute

A Pension Sharing Order only takes effect 28 days after the date of the Pension Sharing Order.

If you divorce before the 28 days are up, and the Pension Sharing Order hasn’t taken effect, it can’t be enforced.

What happens to a pension sharing order on death

Some pension plans include a lump sum or a spouse/civil partner pension. Each scheme will have its own rules for who gets what. Death benefits from a deceased member’s pension are not shareable.

Can I get a pension sharing order if I’ve lived with my partner for a long time?

If you live with your partner but haven’t married or entered into a civil partnership, you won’t have the option to pursue a pension sharing order if you seperate

Will my pension provider charge me for taking on my new pension

Yes, they will notify you within 21 days of the charges you’ll be liable to pay.

How can we help?

If you need advice on pension sharing orders please don’t hesitate to get in touch either through our pensions and retirement advice page or by clicking the button below

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