What is a Pension Sharing Order? 

Pension Sharing Order

When negotiating the divorce financial settlement, one of the most significant assets that a divorcing couples must consider is their pension pot. For some, particularly those who have been married for a long time, this can be an extremely valuable asset which must be included in the assets to divide. In England and Wales, a Pension Sharing Order is a legal tool used to divide retirement funds between divorcing couples. In this article, we will explore what a Pension Sharing Order is, how it works, and why they are essential in the divorce process.

What is a Pension Sharing Order?

A Pension Sharing Order is a Court order that divides a pension between divorcing couples. It allows one spouse to receive a portion of the other spouse’s pension as part of the financial settlement in a divorce. This means that both parties will have their own separate pension funds after the divorce is finalised. When couples do not take legal advice to negotiate the divorce financial settlement this is often one asset that is overlooked, but failing to consider a pension fund can leave one half of the former couple in an unfair financial situation during their retirement years. This is particularly relevant when half of the couple has stayed at home to raise a family enabling the other half to work and build a pension – a pension should be shared, just like every other asset.

State Pensions

A Pension Sharing Order does not apply to state pensions. While most workplace and personal pensions can be subject to a Pension Sharing Order during a divorce, state pensions cannot be shared in this way. However state pensions and the fact that many people sacrifice a full state pension to raise a family, can be considered during the overall divorce financial settlement.

How Does a Pension Sharing Order Work?

A Pension Sharing Order allows one spouse to receive a percentage of the other spouse’s pension fund, which is then transferred into their own pension fund.

The percentage of the pension that is shared is determined by the Court, taking into account factors such as the length of the marriage, the age of the parties, and their financial needs. The Pension Sharing Order will specify the percentage of the pension that will be shared, and this will be reflected in the final financial settlement.

Once the Pension Sharing Order is in place, the pension provider will transfer the specified percentage of the pension into the receiving spouse’s pension fund. This can be done in various ways, such as setting up a new pension account or adding the funds to an existing pension.

When is Pension Sharing a Good Idea?

Pension sharing is a good idea in situations where one spouse has significantly more pension savings than the other spouse. It ensures a fair division of assets, especially in long-term marriages where one spouse may have sacrificed their career to raise a family. By sharing the pension, both parties can have a more secure financial future post-divorce. Additionally, pension sharing can provide financial stability for the spouse who may have limited retirement savings, ensuring they are not left in a vulnerable financial position during their retirement years.

Pension Sharing Order vs. Pension Attachment Order

It is essential to note that a Pension Sharing Order is different from a Pension Attachment Order. A Pension Attachment Order, also known as an Earmarking Order, is a Court order that directs the pension provider to pay a portion of the pension to the receiving spouse when the pension holder retires. This means that the receiving spouse will not receive any pension funds until the pension holder retires.

In contrast, a Pension Sharing Order allows the receiving spouse to receive a portion of the pension immediately, which is then transferred into their own pension fund. This provides more financial security for the receiving spouse and avoids any potential issues that may arise if the pension holder does not retire as planned.

Pension Sharing Order vs. Pension Offset Order

An alternative to the Pension Sharing Order is the Pension Offset Order. A Pension Sharing Order divides a pension between divorcing couples by transferring a percentage of one spouse’s pension fund into the other spouse’s pension fund. It provides a clean break by creating separate pension funds for each party.

In contrast, a Pension Offset Order offsets the value of one spouse’s pension against other assets, such as the family home or savings. This means that one spouse may keep their entire pension while the other receives a larger share of different assets to balance the division.

Both orders have different implications for the division of assets and financial security post-divorce, so it’s crucial to seek legal advice from a family law solicitor to determine which option is most suitable for your circumstances.

Why Are Pension Sharing Orders Important?

Pension sharing orders are essential in the divorce process for several reasons.

Fair Division of Assets

Pension Sharing Orders ensure that both parties receive a fair share of the pension fund, taking into account their contributions and needs.

Protecting Retirement Funds

Pensions are often one of the most significant assets that couples have, and they are crucial for providing financial stability during retirement. Without a Pension Sharing Order, one spouse may be left with little to no retirement funds, which can have a significant impact on their financial future. Pension Sharing Orders help to protect retirement funds and ensure that both parties have a secure financial future.

Clean Break Order

By dividing the pension through a Pension Sharing Order, both parties will have their own separate pension funds. This can help to avoid future disputes over the pension and ensure that each party has control over their own retirement funds as this approach can result in a Clean Break Order. A Clean Break Order severs all financial ties between the former couple enabling them to have financial freedom from their former spouse.

Seek Legal and Financial Advice

The area of divorce and pensions and the pension sharing order can be complex so it’s advisable to seek legal advice for two reasons. Firstly to ensure that the information required for the is collated properly and presented to the Court in a manner that is likely to result in a fair outcome. And secondly to ensure that the process with the pension service providers is properly followed.The family law team at Tyrer Roxburgh can help.

You may also be interested in Pensions and Divorce: All you need to know. 

We pride ourselves on being friendly and approachable so if you need advice from one of our friendly solicitors, please do get in touch by calling 0208 889 3319 or via one of the options below.

The first introductory call is free and enables you to outline your circumstances and for us to explain how we can help. Our team are friendly and approachable and are always happy to answer your questions.

If you have a question about our services, please use our online form to send us an email.

If you need to speak with someone you will always receive a friendly welcome if you telephone between the hours of 9am-5pm but if we are closed, you can  request a callback. We will call you back as near to your requested time as possible.

Common Questions and Answers About Pension Sharing Orders

Who can apply for a Pension Sharing Order?

Either spouse can apply for a Pension Sharing Order during divorce proceedings and a Pension Sharing Order will only be considered by the Court once divorce proceedings have officially commenced when the Conditional Order has been issued. Pension Sharing Orders are not available to unmarried couples.

Are all pensions suitable for a Pension Sharing Order?

Not all pensions are suitable for a Pension Sharing Order. In the UK, most workplace and personal pensions can be subject to a Pension Sharing Order during a divorce. State pensions, however, cannot be shared in this way. It’s essential to seek family law legal advice to understand which pensions can be divided through a Pension Sharing Order.

Who Informs the Pension Provider that a Pension Sharing Order is to be implemented?

The pension provider is legally obligated to comply with a Pension Sharing Order once it has been granted by the court. The responsibility of informing the pension provider about the order typically falls on the parties involved in the divorce or their legal representatives. They will provide the necessary documentation to the pension provider to ensure the correct implementation of the Pension Sharing Order.

Does a pension provider charge for implementing a Pension Sharing Order?

Pension providers may charge a fee for implementing a Pension Sharing Order. These fees can vary depending on the provider and the complexity of the order. It’s advisable to check with the specific pension provider regarding any charges associated with implementing a Pension Sharing Order. Who pays the fees is a question dealt with during the overall divorce financial settlement.

What is the P1 Form?

The P1 Form is a document used in the UK to apply for a Pension Sharing Order. It is part of the legal process involved in dividing pension funds between divorcing couples. The P1 Form is submitted to the Court to request the implementation of a Pension Sharing Order, which allows one spouse to receive a portion of the other spouse’s pension as part of the financial settlement in a divorce. It’s advisable to take legal advice when completing this form to ensure the information submitted will result in a fair outcome.

When does the money get transferred?

The money is transferred as part of a Pension Sharing Order once the Court has granted the order. Once the Pension Sharing Order is in place, the pension provider will transfer the specified percentage of the pension into the receiving spouse’s pension fund. This transfer can be done in various ways, such as setting up a new pension account for the receiving spouse or adding the funds to an existing pension fund.

A Pension Sharing Order can’t be put into action until the finalisation of the divorce or dissolution process, and when the final decree or Final Order is issued. When the Final Order is issued and the service provider has been informed, the pension service provider is given a four-month period to execute the pension credit transfer.

Related Posts

2024-03-04T14:51:17+00:00
Go to Top