Understanding the Impact of Pensions in Divorce
With pensions often being a significant asset, their role in divorce settlements is crucial. Here’s an overview of key considerations:
1. Previous Legislation
Matrimonial Causes Act 1973:
Deals with the provision of a ‘clean break’ wherever possible.
Pensions Act 1995 (PA):
- Requires courts to consider pension rights in divorce settlements.
- Introduces earmarking pension benefits and cash equivalent transfer values (CETVs).
Welfare Reform and Pensions Act 1999:
- Introduces Pension Sharing on Divorce from December 2000.
- Aims for a ‘clean break’ settlement, allowing pension benefits to be shared or split.
2. Offsetting
Offsetting involves valuing pension funds and redistributing assets. One party might receive a greater share of non-pension assets (e.g., the family home) while leaving the pension untouched.
Note: Ideal but may not be feasible if non-pension assets are insufficient.
3. Attachment Order (Earmarking Order in Scotland)
Attachment (earmarking in Scotland) applies to private pensions, excluding state benefits. It involves a court-issued order directing the pension scheme to pay a proportion of benefits directly to the ex-spouse.
Note: Earmarking has limitations, including potential control issues for the member.
4. Pension Sharing
Pension sharing applies to all pensions except state basic old age pension. Benefits are valued, and the share can be transferred or incorporated into the other party’s pension scheme.
Note: Cost considerations, administrative inconveniences, and professional advice are essential.
5. Cash Equivalent Transfer Value (CETV)
CETV represents the expected cost of providing the member’s benefits within the scheme. It is a key factor in pension valuation.
6. Summary
Pension sharing, when offsetting is not feasible, is a viable option. However, costs, administrative complexities, and the need for professional advice should be carefully weighed. Considerations for “co-habitant” relationships are evolving.
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