Like any divorce proceeding, this can be a tricky situation as many factors come into play ultimately, affecting what happens with your U.K pension(s) in a divorce. With any divorce including a complex financial situation, it would be best to seek professional help from specialist advisors and solicitors.
Pension in a Divorce
In a divorce, pensions are one of the most difficult assets to encounter. This is made even more significant after the prime residence studies show it is the most significant asset that most people will have.
A divorce is done in steps
- Engage with a Solicitor
- Complete a list of assets
- Obtain current valuations
- Obtain and Implement a court order
- Settlement
Who is entitled to what part of the pension?
Both parties have equal rights to pension assets although one might have contributed significantly more than an other.
What options do you have?
With the introduction of the pension freedom act of 2015, you have more options to what you can do with your pensions.
But this depends on what type of pension that you or your partner have.
- Define Benefit – These offer an income for life and referred to as gold-plated as not many companies offer them anymore.
- Define Contribution – This is where the pension is linked to the underlying value of assets.
It is easier to deal with DC, pensions as these have a set value. DB schemes have a different set of benefits, and the transfer value will depend on a number of factors. A company is required to offer free CETV each year.
Pension Sharing
You have options in what you and your partner may ultimately want to take and can opt for pension sharing, allowed from the welfare act 1999. This is expressed as a percentage of Cash Equivalent Transfer Value (CETV). This allows a clean break in most cases and entitles both parties to the benefits of the pensions.
This is where the court splits the pension rights right down the middle. This can be done where the ex-partner is entitled to the pension value.
The options of sharing will depend on the pension scheme. But all providers must allow a transfer, to another registered pension scheme. Once transferred as long as you abide by the pension laws Pension Commencement Lump Sum (PCLS) amount, age, etc you have freedom of how the pension credits are taken.
If the pension holder is already withdrawing from his/her PCLS as an uncrystallised pension and not entitled to the tax-free PCLS.
If the pension holder is over 55 the options is to take drawdown, but not entitled to any PCLS.
If this does apply to you, beware of as taking uncrystallised pension funds can trigger off tax implementations.
Offset
Offset in both cases is one of the easiest ways in both pensions cases for a clean break. This involves taking into consideration, the whole net worth of the assets, savings, estate, and pension and splitting it down the middle. It is worth considering, nowadays with the pension scheme and freedom act that benefits get taken into consideration and is not always done on a 1-1 basis as these are factored in.
Attachment of earnings order
This is an order that must be made by the court for a proportion of the pension benefits to be paid directly to the ex-partner.
Until the holder starts drawing an income they are held in the member’s plan. Until the members die (where it lapses) or draw income. The amount paid is specified on the attachment order at the onset. Although, can be revalued later.
One option for the holder to defer income or PCLS is to take all the all benefits as uncrystallised pension lump sum.
Other considerations
You need to consider the Lifetime Allowance of 1,073 million GBP on pensions and the current annual allowance of 40,000 GBP. Going over these can have tax implications.
