Pension Sharing Orders – What are they and how do they work?
October 11, 2021
When a couple decide to divorce or dissolve their civil partnership, a ‘pension sharing order’ may feature in the financial settlement.
Pension sharing orders are legally binding court orders that state that one spouse must transfer a share of their pension to the other spouse. The purpose of a pension sharing order may be to equalise the available pension assets between the spouses, or to achieve fairness in some other way.
In cases where the pension assets are significant, it is often helpful and necessary to instruct a pension actuary to prepare a pension report. The actuary can calculate how to achieve equality of pension capital, equality of income and address questions related to ‘off-setting’ (where one spouse pays a capital lump sum in order to avoid sharing their pension). Pension reports can also deal with ‘ring-fencing’; this is where one spouse’s pre-martial pensions are separated out and protected from sharing. Pensions should not be overlooked as part of an overall financial settlement. They may be the most valuable asset of the marriage.
When a pension sharing order is agreed between the spouses or directed by the Court, a document called a ‘pension sharing annex’ must be prepared. This document provides the relevant pension scheme with the information required to implement the order, including: the spouses’ names and addresses, the percentage to be shared, and who is to pay the costs associated with the transfer. It is usually the spouse who is benefitting from the order who is required to serve the relevant pension provider with the details of the transfer.
According to the Family Procedure Rules, the following documents must be sent to the pension provider within 7 days of receipt of Decree Absolute:
- A copy of the Decree Absolute;
- A copy of the pension sharing order; and
- A copy of the relevant pension sharing annex.
The pension provider then has a period of four months within which to implement the transfer.
Sometimes, it is possible to opt for an “internal” transfer, whereby the existing pension scheme sets up a new pension for the recipient. Alternately, some people opt for an “external” transfer, where their share of the pension is transferred out to one of their own existing schemes, or into an entirely new scheme. The advice of an Independent Financial Advisor should be sought about which type of transfer is best.
If you require any advice in relation to pension sharing orders or financial matters generally, do not hesitate to contact us.
John Hooper & Co