We recently hosted an Instagram Live session featuring Paul Windle, a pensions expert from Actuaries for Lawyers. Paul shared valuable insights on how pensions are handled in divorce settlements.
Here is a summary of the main points discussed:
What are pensions?
Pensions are tax-efficient savings for retirement, providing both income and lump sums. They typically include:
- State pensions: Available to most people working in the UK.
- Occupational pensions: Funded by employees and employers, often as part of employment benefits.
- Private pensions: Often used by the self-employed or as a supplement to other pensions.
Why are pensions such an important asset to consider during divorce?
Pensions can be among the most valuable marital assets, sometimes exceeding the value of the family home. Ignoring them could mean losing out on significant financial security in retirement.
Should pensions be considered even if couples are young?
Yes. Although younger couples may have less valuable pensions due to shorter contribution periods, pensions should still be considered. A straightforward split of the Cash Equivalent Value (CEV)/Cash Equivalent Transfer Value (CETV) – a financial assessment of a pension’s worth if it was to be transferred – might be fair, but this depends on individual circumstances.
What orders can the court make regarding pensions?
- Pension sharing order: Transfers a portion of the pension to the ex-spouse or civil partner.
- Pension attachment order: The pension member pays a portion of their pension benefits to their ex, though this option is less secure.
- Pension offsetting: One party keeps a larger share of non-pension assets in exchange for not claiming a share of the pension.
Why should you consider pensions, even if you plan to keep your own?
Pension values often differ significantly between spouses. To ensure fairness, it’s crucial to consider the imbalance and potentially use one of the court orders to redress it.
How do state pensions factor in?
While state pensions generally cannot be shared (except for those over 71), they should be considered when dividing other pensionable assets.
What if there is an age gap between spouses?
Age differences can complicate income equalisation. The older spouse might need to make periodical payments until the younger one retires, or adjustments might be made to other assets.
When to instruct a pensions expert?
You should consider getting a pension report if:
- Either spouse is over 40.
- Defined benefit pensions exceed £100,000.
- You need to determine the most efficient way to share pensions.
- Some pension benefits need to be “ring-fenced” (e.g., from short marriages).
What is McCloud?
The McCloud case (2019) led to changes in public sector pensions due to age discrimination concerns. It is important in divorce as it may affect the value of pensions not reflected in CEVs/CETVs.
Useful resources
Paul’s top tips
- For members of the public: Obtain a pension CEV/CETV early in divorce proceedings.
- For solicitors and barristers: Stay updated on pensions developments to provide the best and most recent advice.
If you are going through a separation and divorce, our team of family law experts has a wealth of experience and will provide clear advice to guide you through the process. Please contact our Family Team on 01206 700113 or contact us.
For the full discussion, check out our Instagram Live recording Fisher Jones Greenwood | Pensions & Divorce👤🧏🏼♀️ Listen into the conversation with our very own Lisa O’Boyle and Charlotte Knappett alongside expert Paul Windle… | Instagram
Disclaimer: The information provided is for general guidance and does not constitute legal advice. Always seek professional advice tailored to your specific circumstances.