When it comes to divorce, pension sharing might not be your first thought. With all the different pressures, it’s tempting to put your attention entirely on your savings and property, along with any child arrangements. However, there are many reasons to make a pension sharing order a priority for your divorce negotiations.
Recently, the Pensions and Lifetime Savings Association (PLSA) updated its guidance on divorce and pension sharing. In this guide, we’ll explore why organisations such as the PLSA are encouraging couples to seek legal advice from professional divorce solicitors about pension sharing. We’ll also explain the gender gap in pensions, and the options you have to level the playing field.
Why are pensions important in a divorce?
Pensions are often neglected during divorce proceedings. That may be because the divorcees’ attention has been focused on more immediate issues, such as child custody or splitting assets. The parties may also not have sought legal advice from expert divorce solicitors, and are not fully aware of the options available for protecting their finances.
However, pensions are actually very important, particularly in the long term. They can give you security and peace of mind about later life. This is particularly essential for partners who’ve remained at home to take care of their children, and haven’t built a significant pension of their own. That’s arguably why it has such an impact on women…
How does divorce impact the gender pension gap?
The gender pension gap, which refers to the significant disparity in pension assets between women and men, plays a critical role in divorce proceedings. This gap is often more pronounced in cases where one partner, commonly the wife, has taken on homemaking responsibilities or worked part-time, leading to a smaller personal pension. Research from the University of Manchester underscores this issue, finding that in around half of all couples with pensions, 90% of the pension wealth is held by one partner, usually the husband. This reality highlights the crucial need for careful consideration of pension assets during divorce, especially for those who may have sacrificed career opportunities for family responsibilities.
Aside from this, many women are simply not aware that they can claim for pensions in their divorce proceedings. According to statistics from Scottish Widows, over 60% of women don’t address pensions during their divorce. That’s in spite of the fact that pension assets can be worth more than property.
While using an online DIY divorce service can present certain risks, it’s important to note that not all these services are alike. Some online divorce platforms may not cover financial issues comprehensively or provide access to professional legal advice. However, others do offer options for financial settlements and might provide some level of legal guidance. Therefore, if you are considering an online DIY divorce, it’s crucial to thoroughly research and understand the services offered, especially regarding financial matters and pension implications.
What are your options for divorce pension sharing?
At the start of your divorce proceedings, you and your spouse will participate in a “financial disclosure” session. During this process, you’ll provide a breakdown of all the assets you own. Along with property and savings, that also includes your pensions. If you find you’re at a disadvantage in terms of pension assets, then you can raise this during the negotiation process.
The starting point for splitting financial assets tends to be 50/50. However, the courts will consider your personal circumstances when deciding how your assets, such as your pension, should be split between you and your ex-spouse.
You have two options for equalising your pension assets – pension sharing and pension offsetting. With divorce pension sharing, you’ll receive a percentage share of your ex-spouse’s pension.
Alternatively, you could opt for pension offsetting. In this option, you’ll receive a larger share of another asset in place of a pension share. Whilst this option might seem appealing, it could potentially impact your financial security later in life.
It’s important not to make a snap decision about which option is right for you. Instead, you should seek comprehensive advice. While consulting with legal experts like Osbourne Pinner Solicitors, who offer a no-fee, no-obligation 30-minute consultation, is crucial, it’s also advisable to speak with financial advisors, especially those specialising in pensions. They can provide valuable assistance in understanding the long-term financial implications of different pension sharing arrangements, ensuring you make a well-informed decision for your future financial security.
How does a pension sharing order work in divorce?
If you decide to pension-share with your ex-partner, then the court will issue a pension sharing order (PSO). This will state how much you’re entitled to. Typically, this will be calculated as a percentage of the pension’s transfer value. So, for example, if you received 30% of a £200,000 pension, then you’d get £60,000. The only exception for this is Scotland, where it can also be calculated as an amount.
Pensions that the court can divide include defined benefit and defined contribution benefits. Regarding State Pension benefits in the UK, it’s important to note that while the Basic State Pension cannot be shared or divided upon divorce, the Additional State Pension can be, under certain circumstances. This distinction is crucial as it impacts the potential pension assets that can be considered during divorce proceedings.
Once you’ve received your share, you might be able to join your ex-spouse’s pension scheme or move it to your own. However, you’ll need to look into this carefully and speak with the pension company before making any changes.
Consult with an experienced divorce solicitor today
Understanding which financial assets you may be entitled to during a divorce can be confusing. It’s important to note that this blog post is for informational purposes only. Seeking legal advice gives you the best chance to protect your finances and create a secure future for you and your loved ones.
If you’d like to learn more about your options for pension sharing, you can arrange a free, no-obligation consultation with one of our experienced divorce lawyers. Simply fill out the online form below, or send us an email at [email protected]. Or you can call us on 0203 983 5080.