Pension sharing fact sheet
Pension sharing provides an option whereby pension benefits may be split between the two parties of a divorcing couple. It was introduced with effect from 1 December 2000 and applies only to divorce cases where proceedings commenced after that date.
How does it work?
The court will decide whether a pension is to be shared and the amount or each party’s share. The court will issue a Pension Sharing Order. The credit in the pension concerned is physically subdivided at the time of the divorce. Depending on the type of pension scheme involved, the party receiving the credit may have a choice as to whether to become a member of their spouse’s scheme in their own right (known as an ‘internal transfer’) or to transfer to a different pension scheme (known as an ‘external transfer’). If the external transfer method is used, the member’s pension is reduced by applying a debit to it and the receiving party is given a pension credit to place into another pension scheme.
How do you work out how much the pension is worth?
Pension rights will be valued by finding the Cash Equivalent (CE) value. This is a lump sum representing the value of the pension at a given date. The given date will normally be the date upon which the pension provider receives a request to value the scheme. A formal valuation will usually be disclosed during proceedings so that the court can use it when working out a divorce settlement. Any order made by the court will usually be based on the CE worked out on the day that the order is issued, though other dates can be ordered by the court or agreed by the parties.
Pension Protection Fund compensation schemes
If you or your spouse is a member of a Pensions Protection Fund (PPF), then the court can make a Pension Sharing Order in relation to such a scheme. Again, the CE value will be used.
The government has estimated that there will be 50,000 Pension Sharing Orders per year. However, there will still be many cases where the pension sharing may not necessarily be the most appropriate course of action. It is important to consider each case on its facts and we can advise you on alternatives that may be available to you.