The calculation of a pension can be an important aspect of any financial calculation in the splitting of assets. It is a complex subject and this text is not meant to provide anything other than basic information about how the Courts treat pensions. For specific advice about your particular circumstances and your pension, you should contact one of our Solicitors who would be happy to explain pension provision in more detail and advise you further.
A pension is a long term investment that is built up during a working person’s life when they pay in a proportionate of their income into the pension fund. There is also a state pension and private pension funds, for example occupational pensions or personal pensions. A pension is not like a savings account because the money cannot be accessed until a specific age. A pension is a valuable intentional asset and its funds only become fully available upon retirement. The income from a pension depends upon the type of pension.
How is a pension valued?
Pension funds are often the second largest matrimonial asset after the family home. The courts have thus far struggled to define pensions treating them sometimes as deferred capital and on others times as a fixed rate of income. Depending on the value of the fund, it may be valued using its cash equivalent value (CE) only. The CE is calculated by the pension scheme provider and every pension holder is entitled to one free CEV each year. However, the CE simply represents a snapshot in time of the value of the fund on any given date. As a result, CE’s can vary significantly day to day or week to week. Therefore, the CE simply provides an idea of how much the pension is worth but it is not conclusive. If a pension fund is valuable, say above £150,000 then it is recommended that Actuarial advice is obtained in order to understand the true value of the fund and to calculate the income stream the pension will produce for the parties.
Pensions can also include benefits such as life insurance and a widow’s benefit, which benefit spouses if the pension holder dies before retirement. The Court may have regard to these benefits when it comes to issues such as pronouncing decree absolute prior to a financial settlement being agreed between the parties.
Options for pensions
Parties will sometimes simply wish to divide their combined pension rights on an equal basis using their respective CE values. However, this approach will not necessarily produce equal income upon retirement due to factors such as the parties’ ages, their life expectancies, commercial factors and other case specific actuarial statistics.
This is simply looking at the parties’ available assets including pensions and offsetting one party’s pension interest by compensating them with a greater share of other assets.
An Attachment Order allows the Court to order the pension provider to pay all or part of the pension (including its benefits) to the ex-spouse on retirement or death. As an Attachment Order is a form of deferred spousal maintenance, any Order made against income benefit will cease on remarriage or death.
A Pension Sharing Order divides a pension (and its benefits) between the parties at the time of divorce. This would usually be a percentage of the CE. The state second pension and the new state pension as well as any lump sum payable on death cannot be shared. Contrast this with a pension attachment order where the court can order the whole or part of the death benefits to be paid to the recipient spouse.
The Pension Sharing Order takes effect on final decree (Decree Absolute) so cannot be made in judicial separation cases.
The recipient of a Pension Sharing Order may transfer their share into a new pension fund or if the provider allows it, the recipient’s share may remain with the provider. However, the new fund will be in the recipient’s own name and will thereafter be their own pension provision unaffected by their ex-spouse’s fund or future contributions. A transfer is not possible if the pension is an unfunded scheme and a public service pension scheme.
It is not possible to make both a Pension Sharing Order and a Pension Attachment Order in respect of the same pension.
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