Pension sharing

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In January 2012, the Office for National Statistics reported that the number of divorces in England and Wales in 2010 was 119,589, an increase of 4.9 per cent since 2009.

The divorce rate rose in 2010 to 11.1 divorcing people per thousand married population from 10.5 in 2009 and the number of divorces in 2010 was highest among men and women aged 41 to 44.

These are ages at which the impact of divorce on retirement provision should be a major consideration.

Pensions sharing offers a clean break settlement and gives the ex-spouse or civil partner legal ownership and control over his/her share of the pension.

In simple terms the benefits are transferred to a plan in the ex-spouse’s name.

Pension sharing on divorce or dissolution of a civil partnership has various advantages and disadvantages.

Some advantages are that sharing provides a clean break and each party has independent pension benefits in their own right, under their control.

Where the ex-spouse may be contemplating remarrying, unlike pension earmarking, any pension sharing arrangements would be unaffected by remarriage. Importantly, neither party’s rights are affected by the other’s subsequent death.

Finally, the ex-spouse/former civil partner will be able to take benefits from age 55 in respect of the “pension credit” rather than be compelled to wait until the member retires (as would apply in respect of earmarking).

However, the lump sum death benefits cannot be shared, so the ex-spouse/civil partner may have to replace lost life assurance cover.

In return for the pension share, the ex-spouse/civil partner will receive less of the couple’s non-pension assets. This may result in them being in financial difficulty if they are below pension age and, therefore, unable to access the pension credit rights.

The amount to be awarded to the ex-spouse may be decided by the court or by the divorcing couple and the amount is then expressed in a pension sharing order or agreement approved by the court.

Pension sharing orders are expressed as a percentage of the cash value of the plan, known as the cash equivalent transfer value (CETV), to be re-allocated to the ex-spouse.

If you need any more information concerning pensions and divorce, please do not hesitate to contact us.