Must pension sharing be on a
50/50 split basis?
There is no legal requirement for pension arrangements
to be split 50/50. If agreement cannot be reached the
courts will have to determine the percentage after considering
other assets, the finances of each party and retirement
However, where the retirement benefits are significant
the landmark case of White
v White (2000) suggests the court should begin with
an equal division of the matrimonial assets and only vary
from this basis according to the merits of the case. Usually
the parties involved will come to an agreement through
their solicitors as to the percentage share of retirement
benefits, whether this results in offsetting against other
matrimonial assets, earmarking or pension sharing.
For example, it may be the wish of the parties to have
an equal pension income in which case the pension fund
split will not necessarily be equal. This is because annuity
rates are based on age and life expectancy that will differ
for men and women. Women will live longer receive more
income over time in total, requiring a larger fund and
therefore a larger percentage in the pension
Can pension sharing be achieved without going to
It is not possible to divide the pension arrangements
without going to court, the step-by-step
the process. The other matrimonial
assets such as the family home can be transferred to one
spouse or the other, this being agreed between the parties
and recorded through the solicitors without going to court,
however there must be a court order to divide the members retirement
benefits. This is because the provider or scheme cannot
act to divide a pension arrangement without a direction
from the court.
These court proceedings
do not have to be contested as in the majority of cases
the parties have come to an agreement through their
solicitors and only require a consent order from the
court. In this case the petitioner will apply for a
financial order and at the first
appointment the court can bring to a conclusion
the wishes of the parties by way of an earmarking order
or pension sharing order.
Can pension sharing occur after divorce is final?
An application for divorce
procedures and ancillary relief proceedings are
separate processes and therefore pension sharing can
and often will occur after the divorce is final. This
process is shown in the step-by-step
a pension sharing order cannot be made until the granting
of the decree
At this time there is a short window or opportunity
where the pension sharing order can be varied. Applying
for a variation of settlement order would mean the pension
sharing order could not be implemented. Once the decree
absolute was granted and the pension sharing order implemented,
no further variation is possible.
Is pension sharing compulsory?
Pension sharing is not compulsory and is only one of
several options that can be taken during ancillary
relief proceedings to divide the pension arrangements.
For example, it may be more appropriate to use offsetting
against other matrimonial assets where the members pension
rights are not significant or use earmarking.
The court will
consider the needs of both parties and may decide to
ignore dividing the members
pension rights if the couple are still young, married
for a short time or the value of the pensions is too low to justify the costs associated with a pension
sharing order. To decide on the best route the parties
should take legal advice from a solicitor and financial
advice from a pension
Is a pension audit necessary for pension sharing?
In legislation the required valuation method is the
cash equivalent transfer value (CETV).
For cases where the pension arrangement are money purchase
schemes such as a personal
pension or stakeholder pensions and do not represent
much money in relation to other matrimonial
assets or in absolute terms, it is unlikely a court
would require a pension audit especially if the cost
could not be justified.
However the court
must have regard to rule 2.51B of the Family Proceedings
Rules 1991 where the pension arrangements are significant
compared to the other matrimonial assets and complex
in nature as is the case with a final salary pension,
such that the CETV
Method is not sufficient.
The court will be concerned with achieving a fair value
of the retirement benefits for both parties and require
expert evidence in the form of a pension audit to determine
a suitably adjusted
CETV reflecting the circumstances and specific needs
of the parties on divorce. This will use the CETV from
the provider as the basis of the valuation. An independent
financial adviser (IFA) that is qualified as a pensions
expert usually provides this audit.
fair value must be ascertained in such cases as once
the pension sharing order is implemented it cannot be
varied in the future, so if a mistake is made at the
data collection stage or valuation stage, this could
result in a material loss for either party.
Can there be more than one pension sharing order?
A former spouse cannot make more than one pension sharing
order against the same pension arrangement. However,
where the partner has a number of separate pension arrangements
such as a final salary pension and two separate stakeholder
pensions and where the former spouse has a pension
sharing order on the final salary pension, it will be
possible at a later date or even at retirement
age to apply for a pension sharing order on the
This will not apply to divorces where the petition was
made before 1
December 2000, the date from which pension sharing
could be applied. It will be possible for a pension
sharing order to be made against a pension arrangement
that has been subject to such an order if it is from
a previous marriage.
For example, a husband with a final
salary pension divorces and is subject to a pension
sharing order against the scheme. His second wife can
also apply for a pension sharing order against the same
scheme if he divorces for the second time, thereby applying
deferred pensions at normal pension age (NPA).
Is earmarking and pension sharing possible?
It will not be possible to make a pension sharing order
where there is an existing earmarking order applied
to the pension arrangement and this is stated in the
Matrimonial Causes Act 1973 (MCA
73). This will be the case even it the earmarking
order was applied by a previous marriage. Similarly
where the former spouse has applied for a pension sharing
order it will not be possible to apply for an earmarking
order in relation to the same divorce, such as an
order against the lump sum death benefit of an occupational
If for example on the husbands first divorce there was
a pension sharing order applied against a final salary
pension, then his second wife could apply for an earmarking
order and use this against the lump
sum death benefits of this pension arrangement to
protect her maintenance payments, in the event of the
husbands death before normal pension age.
Where does the money come from?
As a result of the pension sharing order the money for
the settlement will come from the retirement benefits
accrued within the members pension arrangements. This
will be created firstly by a pension debit against the
members pension rights leading to a pension credit of
equal value for the former spouse. A scheme internal
transfer or external transfer to another scheme
will establish a new separate pension arrangement in
the former spouses name as shown in the step-by-step
guide. It is this new
arrangement that pays a tax
free lump sum as well as a pension income to the former spouse at retirement
In many cases the spouse is nearing retirement and requires a pension income from either the internal or external transfer. Where this is a money purchase scheme, the spouse can use the pension fund to buy an annuity and has the option to use an open market option to search for the highest pension annuity. Once you have purchased an annuity it cannot be changed, so learn more about annuities, compare annuity rates and before making a decision at retirement, secure a personalised pension annuities offering guaranteed rates.
This is different from other matrimonial assets
where settlement is achieved by offsetting a members retirement benefits against non pension assets
and earmarking where an order is made against a members
pension rights to pay the former spouse directly from
that scheme, thereby not realising a clean break between
How is the value of benefits expressed?
debit against the scheme members pension rights
must be specified as a percentage in the pension sharing
order made by the court or as a result of agreement
between the parties and is documented in the pension
sharing annex as shown in the step-by-step
If the court order is determined in terms of a specific
amount rather than a percentage, then the pension debit
will be made as the percentage this amount represents.
The former spouse will receive a pension
credit of an equal value to the pension debit.
When will the money be transferred?
A pension sharing order cannot take effect during a
divorce procedure until the decree
absolute is granted. The provider of the pension
arrangement will then have 4 months in which to implement
the pension credit starting on the day the order takes
effect or if later, the day the provider receives the
documents from the court as shown in the step-by-step
Within 21 days of receiving the pension sharing order
the pension provider must provide the member and the
former spouse with information about charges associated
with the pension
transfer. This will include a statement of why it
cannot be implemented or when it will be implemented.
Once the provider has completed the necessary calculations
of the percentage required for the pension debit and
completed the pension credit, within 21 days the provider
must issue to both the member and former spouse a notice
of discharge of liability.
This will show information about the value of the pension
debit and pension credit, the remaining fund value to
the member and how the parties have paid the charges.
Can a pension sharing order be varied?
nisi must occur before a pension sharing order can
be granted. Once the order has been granted it is possible
to apply for a variation
of settlement order and this will have the effect
of preventing the pension sharing order from being implemented.
It is only when the decree absolute is granted and the
divorce is made final that the order takes effect and
it will no longer be possible to vary the pension sharing
order. The reason for this is because any appeal will
be out of time but also that special provisions in the
MCA 73 as inserted by the Welfare Reform and Pensions
Act 1999 (WRPA
99) to protect the pension scheme against further
Are there consequences if the scheme member remarries
With regard to pension
sharing, there will be no consequences for the former
spouse if the scheme member remarries. Similarly if
the member dies the former spouse will not be affected.
Pension sharing creates a clean break between the parties
pension arrangements on divorce.
Once the pension arrangements have been divided the
former spouse has no further claim on the members pension
rights but has now retirement benefits in his or her
Are there consequences if the former spouse remarries
Pension sharing creates a clean
break between the parties pension arrangements on
divorce so there are no consequences to the spouse by
remarrying, unlike earmarking. The principles of pension
sharing are that the former spouse will receive the
same rights and benefits within the pension scheme as
For a defined
benefit scheme such as a final salary pension where
the former spouse is allowed an internal transfer, on
his or her death the scheme rules provide for survivors'
pension rights and lump sum death benefits that
will be paid to the new person the former spouse has
married, or if single, dependents pension rights to
If an external transfer is made because dual
membership is not allowed, on death of the former
spouse the benefits paid will depend on the new scheme
rules and the specific provisions made by the former
In many cases the spouse is nearing retirement and requires a pension income from either the internal or external transfer. Where there is a clean break and this is a money purchase scheme, the spouse can use the pension fund to buy an annuity and has the option to use an open market option to search for the highest pension annuity, adding all the features necessary such as escalation, frequency of payment or a new survivors income. Once you have purchased an annuity it cannot be changed, so learn more about annuities, compare annuity rates and before making a decision at retirement, secure a personalised annuity quote quote offering guaranteed rates.