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Pensions are often one of the most valuable yet frequently overlooked assets in divorce, especially for affluent individuals who may have built up a substantial pot.
Indeed, a report by the Law Commission, published by the Financial Remedies Journal, revealed that:
- 42% of wealth in the UK is held in private pensions, which often represent a divorcing couple’s most valuable or second-most valuable asset
- Only 11% of divorcing couples who were yet to draw on their pensions included a sharing arrangement in their settlement
- 24% of divorcing adults in the UK did not know if their spouse had a pension, let alone how much it was worth.
Keep reading to find out why pension sharing on divorce is important and learn about the three main options you might want to consider.
Pension sharing could play an important role in protecting your post-divorce financial security
Divorce is often an emotionally challenging and uncertain time. As such, you might be eager to get a clean break and move on.
This could lead you to prioritise your immediate needs during financial negotiations, such as housing and child maintenance.
However, obtaining a fair division of pension wealth is critical for ensuring your long-term financial independence and security.
This may be especially true for women, who live longer than men on average and therefore are likely to need a larger retirement fund. And yet, according to research by Legal & General, divorcing women are significantly more likely (28%) to waive rights to their partner’s pension than men (17%).
In contrast, including pensions in your divorce could help to ensure:
- A clean break – Allowing you both to manage your retirement incomes independently
- A fairer division of your shared marital assets – One that accounts for potential imbalances, such as those created by career breaks and the gender pension gap
- A settlement that provides for your future (and that of any dependants) – Reducing the risk that you’ll face a financial shortfall in retirement.
It’s important to note that once the courts have finalised a financial settlement, it can only be amended in exceptional circumstances. As such, it’s crucial to consider pension sharing at the negotiation stage.
3 pension sharing options to consider if you’re getting divorced
There are three main ways to share pensions during a divorce:
1. A Pension Sharing Order (PSO)
The family court can issue a PSO as part of your financial settlement. This is a legally binding document that states how your combined private and workplace pensions should be split between you and your ex-spouse.
In England, this will be expressed as a percentage of the pension’s Cash Equivalent Transfer Value (CETV), which is calculated by the scheme administrator or provider. For example, if one of your pensions has a CETV of £200,000, a 50% share would give you each £100,000.
In Scotland, the amount due to each person may be given as a percentage or a fixed amount.
The court will decide how to divide your shared pensionable assets based on each person’s circumstances. This means that you might each receive a different amount.
Any portion the court awards you is called a “pension credit”, which you can choose either to leave with the same pension provider or to transfer to a different scheme.
2. Pension offsetting
Rather than sharing pension assets, offsetting allows one person to keep their full pension in exchange for giving the other an asset of similar value.
For example, you might agree to keep your pension and allow your ex-spouse or civil partner to keep the marital home if they’re worth a similar amount. If there’s a discrepancy between the value of these two assets, the person with the lower-value asset might also take a larger share of other savings and investments.
It can be difficult to offset pensions fairly because calculating how their value compares to other assets isn’t straightforward and may be disputed. Moreover, pension providers use different methods for working out the CETV, which means comparisons are problematic.
However, unlike with a PSO, you don’t need a court order for offsetting, which makes it an attractive option for some people.
3. Pension attachment (earmarking)
While a PSO and offsetting provide an immediate clean break, attachment allows the courts to “earmark” some or all of one person’s pension for their former partner to receive in the future.
The pension remains in the original owner’s name, but the scheme must pay the other person an agreed share when they start drawing from it.
If you receive earmarked pension benefits, you won’t usually pay Income Tax on them. This responsibility falls to the original scheme member. You’ll need to bear this in mind when deciding how to split the funds fairly.
It’s important to note that an attachment order usually ends if one of the parties remarries or dies.
Get in touch
Pension sharing on divorce is crucial for safeguarding your long-term financial security and independence; however, it can be complex.
We can talk you through your options and help you understand how your choices might affect you in the future, allowing you to make an informed decision.
Email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pensions Regulator.
Approved by Best Practice IFA Group Ltd on 17/6/26