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A Guide to Pension Sharing

Pension Sharing

I often have clients ask how pensions are shared when a relationship breaks down. I have provided a simplified explanation below on this complex topic.

What is a Pension Sharing Order?

I first need to explain the nature of a Pension Sharing Order. It’s a court-ordered transfer of a percentage share of one person’s pension to the other person’s pension. A Pension Sharing Order must be transferred to another pension rather than being taken as cash.

It can only be made within a divorce and is therefore unavailable to unmarried couples. For more information on the division of finances for both unmarried and married couples, contact our team today. We provide expert insights tailored to your unique situation.

How Are Pensions Shared?

Clients will often ask why the total value of pensions (known as the cash equivalent transfer value or ‘CETV’) cannot just be added together and split equally. If only it were that simple.

Pensions are often the most valuable asset when couples divorce and unfortunately it is not as simple as just dividing the total value equally. Pensions are complicated and, even to the most experienced family lawyer, can be very confusing. 

Different Schemes

There are different types of pensions which in turn have different rules which may affect their value.  There are 2 main types, the defined benefit scheme (sometimes called the final salary scheme) and the defined contribution scheme which are very different in nature.

It is also important to understand that a CETV may not be the same as the actual value of a pension. It is simply an estimate of what the pension would be worth if it were to be transferred to a different pension. The actual value may be very different to the CETV which is often difficult for people to understand.

Another consideration is that not all pensions are created equal. Different pension schemes have different rules and restrictions which may affect their value. For example, some schemes may have a guaranteed annuity rate, while others may not. Therefore the future payments of a pension may be different depending on the type of scheme. This sounds confusing because it is.

It is also important to consider the tax implications of dividing a pension. It is usually possible to take a tax-free lump sum of 25% of the pension value when it matures. The value of the remaining pension will usually then be taxed when taken as a retirement income.

The Right Advice 

Although the notion of evenly splitting the total CETV of pensions may appear straightforward, it is a nuanced process. Consulting a financial advisor with expertise in pensions is essential due to its complexity. Factors such as; the type of scheme, the rules and restrictions on the scheme, tax implications, the real value and what happens to the pension on death, require an expert.

The team at Vingoe Family Law work closely with a specialist pensions expert, who guides us on the right approach so that we can in turn advise our clients on the best way forward. Remember that lawyers advise on law, such as whether a Pension Sharing Order is possible. Whereas the pension expert will advise on how the pension should be shared. Working together is hugely important in this complex area and we are very open with our clients that different experts with differing skills are often required to achieve a fair outcome. Vingoe Family Law is committed to ensuring that you get the best outcome in your situation, contact us for more information or explore our website

Anthony Vingoe 

Specialist Family Law Solicitor 

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