A Pension Sharing Order is a legal directive issued during divorce or civil partnership dissolution, allowing one party to receive a share of their ex-partner’s pension. As pensions are often among the most valuable assets—providing long-term financial stability in retirement—they form a crucial part of any financial settlement. Understanding how pension sharing works can help ensure a fair division and a secure financial future.
What is a Pension Sharing Order?
A Pension Sharing Order is a legal means of dividing pension benefits between former spouses or civil partners as part of a financial settlement during divorce or dissolution. It is granted by a court and specifies the exact percentage of a pension scheme to be shared, ensuring a ‘clean financial break’ for both parties.
Types of Pensions Eligible for Sharing
Pension sharing applies to various pension schemes, including:
- Defined Contribution Pensions: These schemes depend on the amount contributed and investment performance, with a final value determined at retirement.
- Defined Benefit Pensions: Also known as final salary schemes, these provide a guaranteed income based on salary and years of service.
Step-by-Step Guide to Obtaining a Pension Sharing Order
Navigating the pension sharing process can feel overwhelming, especially when dealing with legal and financial complexities. Understanding the key stages involved can help you prepare and ensure a smoother experience. Below is a step-by-step breakdown of what to expect when obtaining a Pension Sharing Order.
Step 1: Obtain a Pension Valuation (CETV)
Before the division of pension benefits can take place, a Cash Equivalent Transfer Value (CETV) must be obtained to assess the pensions worth accurately.
Step 2: Court Proceedings and Legal Paperwork
Once the valuation is complete, the next step involves applying to the court for an official order, detailing the percentage of the pension to be shared.
Step 3: Implementation by the Pension Provider
Following the court’s approval, the pension provider will process the order and transfer the allocated share accordingly.
Step 4: Timelines and Expected Costs
The entire process can take several months to finalise, with legal fees, administrative costs, and pension provider charges to consider.
Common Pitfalls to Avoid with Pension Sharing Orders
While pension sharing orders provide a structured way to divide pension benefits, there are several common mistakes that can impact the outcome. Being aware of these pitfalls can help you avoid unnecessary complications and financial setbacks.
Incorrect Pension Valuation
Failing to obtain an accurate pension valuation, such as an up-to-date Cash Equivalent Transfer Value (CETV), can result in an unfair division of assets.
Not Considering Tax Implications
Ignoring potential tax liabilities when transferring pension benefits can lead to unexpected costs later. It’s crucial to seek financial advice to understand the tax impact.
Failure to Update Beneficiaries After the Order
Once a pension is shared, updating beneficiaries is often overlooked. Ensuring your pension reflects your current wishes can prevent future disputes and complications.
What to do with a Pension Sharing Order?
Once you have your Pension Sharing Order, a transfer of your share of the pension into your name will need to be arranged. These pension benefits cannot be paid into a bank account, they will need to be transferred into a pension scheme – either internally or externally from the current scheme.
Your share of the pension may be able to be transferred internally with schemes such as the NHS, Police, Army or Fire Service. This will keep your benefits within the scheme but in your own name and you will be able to choose when to draw on them, subject to the scheme rules.
For most other pension schemes, your benefits will need to be transferred into a separate scheme in your own name.
How can an Independent Financial Adviser help?
We will be able to advise on the most suitable scheme to receive your pension benefits in to. They can look at the requirements for the transfer, your holistic financial situation, and any existing pension provision you have to ensure all requirements and objectives are met.
The world of pensions can feel daunting to navigate, and trying to establish the best place for your pension sharing entitlement to be transferred to can be the same. Whilst you may have an existing pension contract that will accept transfers in from other pensions, some older plans can be relatively expensive and may not offer the full flexibility you require at retirement, when you come to draw on your benefits.
We will be able to deal with the sometimes lengthy process of implementing a Pension Sharing Order and liaise with the pension providers involved to ensure the transfer completes smoothly.
Here at Deep Blue Financial we understand that going through a divorce or dissolution of a civil partnership is already a difficult experience, and the added pressure of managing financial matters like a Pension Sharing Order can feel overwhelming. With so much at stake, it’s crucial to have the right support.
If you find yourself needing expert advice and assistance with your pension planning, we’re here to guide you every step of the way. Contact us today to ensure a smooth, stress-free process and take control of your financial future with confidence.
Common Questions About Pension Sharing Orders
Many people have questions when considering a pension sharing order as part of their divorce settlement. Below, we address some of the most frequently asked questions to help clarify the process.
How long does it take to implement a pension sharing order?
The timeline can vary depending on the pension provider and court processing times, but it typically takes between 3 to 6 months from the court order to the final transfer.
What are the costs involved?
Costs can include court fees, financial advisory charges, and potential administrative fees from the pension provider. It’s important to seek professional advice to understand the full financial implications.
Is pension sharing better than offsetting assets?
Pension sharing provides a direct split of pension benefits, while offsetting involves one party retaining the pension in exchange for other assets, such as property. The best option depends on individual financial circumstances and long-term goals.
