Age UK has recently warned that thousands of women going through divorce could be losing out on significant sums of money in retirement because they are unaware of a legal entitlement to their husband’s pension.
Property and savings play a big part in a divorce, with the family home often seen as the major asset. However, in many cases the pension funds can be just as important and often almost as valuable. Because they cannot usually be utilised immediately to meet, for example, a housing need, they can be overlooked. The pension funds built up during the marriage will be viewed by the court as a matrimonial asset - generated by the couple because their marriage is considered a joint venture even if their respective financial contributions have been different. As a result, on a divorce each party is entitled to a fair division of the pension funds which can be achieved in a number of ways as follows:
This is when the value of the pension is offset against the value of other assets held between the couple, for example, it can be used when one person wants to keep the family home at the expense of any future share of their spouse’s pension. This remains the most common approach of dealing with pensions, however, as highlighted above, this can leave that party with little income provision on their retirement and caution should be exercised when doing this. Pension Attachment Order This is essentially a form of secured maintenance and results in the pension provider paying a percentage of the pension income and lump sum on retirement directly to the other spouse. These orders are relatively rare as the spouse without the pension does not secure a pension in their own right and such an order would end on the pension holder’s death as well as the recipient spouse’s remarriage.
Pension Sharing Order
This is the most commonly used order in relation to pensions and results in the pension being divided between the couple at the time of the divorce. It will be expressed as a percentage of the fund and would provide the other spouse with a pension credit to invest in their own separate pension for their retirement.
Due to the complexity of pensions, including the type of scheme they are in and how they are valued, a 50:50 split of the parties’ pensions funds will not necessarily produce an equal pension income to both parties on retirement. This could be due to a difference in life expectancy, the types of pension being shared and how a pension credit may be invested. Therefore, it is generally advisable to have expert advice, normally from a pension actuary, to determine the correct value of a pension fund and the appropriate percentage split. Advice from an independent financial adviser with regard to the destination of any pension credit is also generally worthwhile.
If you require further information on this complex area, Wheelers offer an initial free half hour’s advice on all family matters at any of our three offices.