When a marriage breaks down the parties will usually seek legal advice as to how their assets should be divided. Matrimonial assets include any pension benefits which the parties owned at the date of their separation. Generally only those pensions which have been built up during the marriage (and any period of living together immediately before the marriage) are taken into account.
A pension sharing order, if made, will form part of a general financial order made within the divorce proceedings and will state that one person should receive a specified share of the other person’s pension or pensions. If it is agreed in principle that pensions should be shared equally and a number of pensions are involved or a person who is a member of a final salary pension scheme is close to requirement it may be necessary to ask a pensions specialist to give advice as to how the pensions should be shared in order to provide equalisation of income to each party on retirement.
Once a pension sharing order has been made a copy is sent to the pension provider(s) for implementation. The NHS Pension Scheme currently charges £3,142 and the Teachers’ Pension Scheme £3,000 to implement a pension sharing order but most pension providers charge considerably less. With some schemes the person receiving the ‘pension credit’ will have to become a member of that particular pension scheme. Other schemes will insist that the credit is transferred to a separate personal pension plan in the name of the person to whom the credit is to be transferred.
If a person is some way from retirement he or she may agree not to pursue a clam for a pension sharing order or accept a reduced percentage in return for receiving a greater share of the other assets (for example the proceeds of sale of the family home). This is known as ‘off setting’.
It will be seen that pension sharing is a complicated issue which may involve lawyers, pensions specialists, accountants and independent financial advisers.