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Hello, in this video we will be looking at pension sharing orders.
Pensions and divorce are both tricky, complicated subjects. The end of a relationship is not a convenient time for technical discussions of your pension, and divorce proceedings make everything more complicated. Deciding on the fate of simple assets is hard in a divorce, and pension plans are much more complex than the family home. But dividing up pensions in divorce doesn’t have to be a headache. A pension sharing order can give you a clean break between you and your ex’s finances.
A pension sharing order is a court order used to separate two people’s pension assets. They are primarily used in the context of divorce, but also when a civil partnership is dissolved.
Pension sharing is important, as retirement savings are often at least as valuable as other marital assets such as a house or maisonette.. Plus a lot of people depend on their spouse to support them throughout their life.
So without a pension sharing settlement, these people would be left almost entirely without retirement benefits. Pension share legislation was introduced in December 2000 to ensure provision to people in these circumstances.
A pension sharing order may sound severe. But though it is technically a court order, it is a necessary part of even many amicable divorces. This is because unlike with some assets such as the family home, you and your spouse cannot simply make an agreement between the two of you.
Pension schemes require a court order to make the necessary changes.
Only a court can issue pension sharing orders. You should discuss pension sharing with your divorce solicitor, as they may have to initiate the process. Less mature couples tend to have more limited pensions set aside. In the majority of such cases a pension sharing order is often not necessary.
If your divorce procedure is amicable, you both promptly submit documentation, and your pension providers are similarly punctual, everything could be finished within a handful of weeks.
But there are a number of things that can go wrong and become obstructions. If there is a problem in valuing a defined benefit pension or a dispute with a pension provider, the consequences can be messy.
So it could be as long as a few months before the pension sharing order has been fully carried out. If one of you has to create a new pension at the conclusion of the process, this can cause significant delays, so bear this in mind.
After a pension sharing order has come into effect, the courts will prepare a valuation of your pension assets, as well as your partner’s. This is then used to ascertain the value of resources to be transferred from one person to the other.
This process of valuations will take into account all your private pension arrangements. This includes every workplace pension scheme you are a part of. If you still have a small pension pot with a previous employer, this must be disclosed. Many are still members of such schemes without even being aware of it, but it is your responsibility to find out.
Valuing defined contribution pensions is simple, as it is usually simply a pot of money or bundle of assets, such as stocks and bonds. Valuing a defined benefit pension, such as a final salary scheme, is a more complex process. This is because it represents entitlements rather than existing assets. A Cash Equivalent Value must be calculated for these pensions, and this may come with a fee.
Pension sharing orders apply even if you are already withdrawing funds from your pension plan. If your pension is a defined benefit or defined contribution scheme, the process is simple. Valuation and implementation proceeds much as it would normally.
Pension sharing is slightly more complicated when the transferring party owns an annuity and is drawing an income. In this situation, the annuity must be ‘unbought’ and there is a recalculation of the income that the owner will receive.
The pension provider is then obliged to carry out any transfers mandated by the courts within a 4-month period. The company has an opportunity to appeal the decision within three weeks, but after that it is bound to carry it out.
Sometimes something goes wrong and pension sharing doesn’t turn out the way you expected. Perhaps, for example, you ended up being allocated a much smaller amount than you expected. Or maybe you think your spouse failed to report all their pension assets. There are various ways to rectify these situations, so do not panic.
You should speak to your solicitor if you think they failed to adequately represent your pension rights on divorce. They may be able to solve the problem, and if it arose due to their own mistake, you might not be charged.
If you would like to read more you can do so on the help and advice website.
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