The court can deal with pensions in one of three ways: pension sharing; pension off-setting; and pension attachment. This section explains what these are.
If a pension sharing order is made in your favour you will be awarded a percentage share of any one (or more) of your spouse or civil partner's pensions. This share is called a pension credit. Your pension credit is transferred into a pension in your own. This new pension will provide you with an income and possibly a lump sum when you retire. You will normally be able to choose which pension plan you want your pension credit transferred into, which could include:
- Becoming a member of your spouse or civil partner's pension scheme (if the scheme administrators would allow it). This is the only option with public sector pension schemes such as the NHS, Police etc.
- Transferring to a pension plan you already have.
- Transferring to a new pension plan set up specifically to accept your pension credit. See pensions and retirement.
This is a highly complex area and mistakes are easily made. Seek appropriately qualified advice from your solicitor or accredited divorce specialist financial advisor - see Useful links.
Pension off-setting is the simplest form of dealing with pensions. The total value of pension funds are offset against other assets. For instance; you may have a greater share of the family home in return for your ex-spouse keeping his or her pensions.
Pension attachment (previously known as earmarking)
A pension attachment order provides one of you with an agreed amount of the other's net pension income and / or lump sum when it starts being paid to them. There are significant limitations to this option:
- The income and /or lump sum cannot be paid to the spouse or civil partner benefitting from the order until the person who receives the pension actually starts to take their pension benefits. They could decide to delay longer than was expected,
- If the spouse or civil partner who has the pension dies it is unlikely the pension scheme will provide the other with any income and/or lump sum.
- If the person benefitting from the attachment order remarries the order will lapse.
- The income from an attachment order is taxed in full on the person with the pension. If the person benefitting from the attachment order pays tax at a lower rate than they do the net income could be less than if it was taxed directly on the person receiving the benefit of the order.