‘We are separating. We both have pensions we have paid into through work for a long time. We both need an income to continue our separate lives and I’m really worried about it. It feels like it’s going to cost a fortune to sort this out and I think pensions are really complicated. We just want to move on and enjoy our own retirements’.
Yes. The anxiety that you have over this is completely understandable. Pensions are so relevant. We often have clients say the following to us.
‘Well, he/she’s got a pension plan I think but I don’t know much about it, and I’m just interested in the house and savings etc’.
When you have read that, read this……
‘Well, he/she’s got a long-term savings plan I think but I don’t know much about it, and I’m just interested in the house and savings etc’.
You wouldn’t say the second one, would you. Both the same plans, aren’t they?
The following summaries, try to explain the many different types which we hope will take the fear away a little.
Types of pension
You can have a look at a credible guide from ‘advice now’ called A survival guide to Pensions on Divorce on the following link. A Guide to the Treatment of Pensions on Divorce (nuffieldfoundation.org)
Here’s the summary.
Defined Contribution Pensions. Usually referred to as the following;
- A ‘stakeholder’
This is for employees. A contract between you and your pension provider with flexible investment and limited charges. Your employer may contribute.
- A ‘personal’
As above, but this applies whether you work, don’t work or are self-employed.
- A pension called an ‘occupational money purchase scheme’.
These are run by your employer, and you have less say on the type of investment.
- Defined Benefit Pensions.
These are pensions where the outcome is based on an amount awarded to you to be paid at the end, e.g. a final salary scheme.
- Public Sector Pensions.
These are defined benefit pensions too which vary depending on which public service body you work for.
- State Pensions.
You must get state pension forecasts to determine what you are projected to get from the state at qualifying retirement age and these can be obtained from the government website https://www.gov.uk/check-state-pension
Anything not listed means it’s an unusual one so you must ask us for help to identify the scheme and its value/effect.
If any pensions have already been ‘cashed in’ we need to know about those so that we can guide you.
Family law is the means by which you each exercise your rights to each other’s pension by gauging the overall values so that you can each reach the incomes you need in the future as far as is reasonably possible.
There are ways that this ‘split’ can be achieved.
- Pension sharing
A percentage of your spouse’s pension can be transferred into a separate fund of your choice.
- Pension offsetting
This, for example, is an agreement between you to keep your pension and take less of, say, the value of your matrimonial home or other capital asset. OR…the other way around.
- Pension attachment
This gives you a share of your spouse’s pension lump sum and income until they die or remarry, and you can only get this when the pension is in payment. Rare because it is not recommended given the limitations. You should instead deal with pensions in payment in such a way as to share the benefit without limits to such triggering events and we can help you with this.
Conclusion
Before this split happens, we need to find out how much these pensions are worth in real terms. Ideally you show each other these values supplied by the pension providers, but there is likely to be a need for more information to get a more accurate picture.
So, a Pension on Divorce expert can be appointed by you both. The cost of this service is usually split between you and we get a much clearer idea about values and how the pensions should be divided between you as fairly as possible.
If all else fails, the court system is there to provide a strict timetable to help you both reach an agreement or make the appropriate pension order if you can’t.
It’s not as expensive as you think, and the benefits can be your long-term financial security.
We’ll guide you.