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Types Of Pensions

Most people are entitled to a basic state pension, but you may also have an additional state pension. A court can order the transfer of part or all of your ex-spouse's additional pension to you, but not the basic pension. (However, other rules may help you claim extra basic pension if you are divorced or your civil partnership has been dissolved).

If you are getting a divorce or civil partnership dissolution and want to know what your entitlement to state pensions might be, you can get a forecast from The Pensions Service – see Useful links. Make sure you tell them the expected date of your divorce or dissolution so that they can advise you what your state pension would be when the settlement is finalised.

You or your spouse or civil partner may have one or more pensions from jobs you have had, known as 'occupational pension schemes'. There are two types of occupational pensions:

  • Money purchase scheme (also called a defined contribution scheme). These are simply a pot of money held within a pension plan. It is the current value of the monies invested that is relevant in agreeing your financial settlement.
  • Defined benefit scheme (for example, a final salary scheme). Your pension is usually based on your salary and the length of time you have been in the scheme. For example, suppose it were one-sixtieth of your pre-retirement pay for each year: if you earned £30,000 and had been in the scheme 20 years, you would get 1/60 x £30,000 x 20 = £10,000 a year pension. Most public sector schemes - for example, for the Armed Forces, NHS and teachers - are defined benefit schemes.
  • There are two ways defined benefit schemes can be taken into account in your financial settlement. Either as a lump sum value, referred to as the cash equivalent (CE) or as a source of income.
  • If the scheme becomes insolvent and the scheme doesn't have enough funds to pay the pensions it has promised, the Pension Protection Fund (PPF) may be able to pay compensation. See the PPF's factsheet Pensions and divorce for details of how a court can decide that pension compensation must be shared with an ex-spouse or former civil partner.

You or your spouse or civil partner may also have a personal pension fund that is not linked to your employment. All personal pension schemes (including stakeholder schemes) are money purchase schemes.

To enable you to give accurate financial information for a divorce or civil partnership dissolution you should request a cash equivalent (CE) from each pension scheme administrator. Make sure you tell them it is for divorce or civil partnership dissolution.

Even when an English court order is obtained, it may not be effective against a foreign pension. If you think this applies to you or your spouse or civil partner then you should speak to a solicitor and get advance advice from the foreign pension company about their requirements for any possible pension rearrangement.


John
Read how others coped:
John
'The solicitor said our pension schemes should be taken into account.
My wife doesn't have much put by but I've been paying into a personal pension for years and have a company scheme from my previous job. But the solicitor says that it's likely we can make an 'offsetting' agreement. So, if she keeps the house for her and the children, in exchange for giving up my share of it, I will keep my whole pension savings instead of sharing them with her.'

  • Sharing – transfer part of one person's retirement savings or pension to the other.
  • Offsetting – give up some retirement savings or pension for a bigger share of other assets.
  • Earmarking – pay part of one person's pension or tax-free lump sum to the other once the pension starts.

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