What Happens to Pensions

Pensions are frequently the most significant financial asset in a marriage, often worth more than the family home, yet they are also the most commonly overlooked in divorce settlements. Understanding how pensions are treated in financial remedy proceedings is essential.

Pensions must be disclosed

All pension arrangements must be disclosed on Form E. Each pension must be given a cash equivalent transfer value (CETV), a snapshot of what the pension is worth at that point in time. For defined benefit (final salary) schemes, the CETV can be misleading and expert advice is often needed.

How pensions can be divided

There are three main ways pensions can be dealt with in a divorce settlement:

• Pension sharing order, a percentage of the pension is transferred into a separate pension in the other party's name. The cleanest and most common approach.
• Pension attachment order, payments from the pension are redirected to the other party when the pension comes into payment. Less common and less clean.
• Offsetting, the pension holder keeps their pension but the other party receives a greater share of other assets (e.g. equity in the property) to compensate.

Getting pension advice

For significant pension assets, specialist pension on divorce advice from a PODE (Pension on Divorce Expert) is worth obtaining. The cost is usually a few hundred pounds and can make a significant difference to the outcome.

Why pensions are often overlooked in divorce settlements

Pensions are frequently the second largest asset in a marriage after the family home, yet they are consistently undervalued or ignored in divorce settlements. This happens for several reasons: they feel abstract compared to a house or savings account, they are difficult to value accurately, and many people assume they belong solely to the person who built them up. None of these assumptions are correct in law.

In England and Wales, pensions built up during a marriage are considered matrimonial assets and are subject to division on divorce in the same way as any other asset. This includes defined benefit (final salary) pensions, defined contribution schemes, and state pension entitlements.

How pensions are divided

There are three main ways pensions can be dealt with in a divorce financial settlement:

Pension sharing

A pension sharing order transfers a percentage of one spouse's pension pot to the other. The recipient becomes a member of the scheme in their own right (or can transfer the value to their own pension). This is the cleanest and most common approach for significant pension assets.

Pension offsetting

Rather than dividing the pension directly, one spouse keeps their full pension while the other receives a larger share of other assets — typically the family home — to offset the pension value. This approach requires careful valuation to ensure the trade-off is genuinely fair.

Pension earmarking

This is now relatively rare. An earmarking order directs the pension provider to pay a portion of the pension to the ex-spouse when it comes into payment. The drawback is that payments stop on the remarriage of the recipient or the death of the pension holder.

Getting pensions valued accurately

Pension valuation is complex, particularly for defined benefit schemes where the Cash Equivalent Transfer Value (CETV) may significantly understate the true value of the pension. Both parties should obtain CETVs from all pension providers as a starting point, but in significant cases it is worth commissioning an independent actuary to provide a more accurate valuation. This cost is often worthwhile when the pension is substantial.