How are pensions split in a divorce in the UK?

Article ⸻

How are pensions split in a divorce in the UK?

May 23, 2024

Pensions can be one of the most valuable assets a couple has and they are often overlooked.  I have found that this is because there is a greater focus on the present and not the future.  Often the main focus is on ‘who will keep the family home’ and this of course can be offset against other assets such as pensions or investments.

Some points for consideration

When it comes to dividing pensions during a divorce in the UK, there are several important considerations. Here’s what you need to know:

  1. Preparation: Before dividing pensions, both parties should compile a list of all pension assets they hold. This includes workplace pensions, personal schemes such as self-invested personal pensions or SIPPs. Knowing the current values of these pensions is crucial.
  2. Different Rules: The rules for pension division differ across the UK. In Scotland, only pensions built up during the marriage or civil partnership are considered. In England, Wales, and Northern Ireland, all workplace and private pensions—whether accumulated before or during the marriage—are included in divorce settlements.
  3. Options for Splitting Pensions: There are various ways to split pensions:
    • Offsetting: One spouse keeps their more valuable pension in exchange for taking less of other capital assets (e.g., home equity or combined savings).
    • Pension Sharing Order: This involves dividing one spouse’s pension(s) between both parties when the divorce is finalised

Remember that the right approach depends on the specific pension scheme, age, and employment status.

What does the research say?

Research conducted by Hilary Woodward alongside Mark Sefton in 2014 (carried out on behalf of the Nuffield Foundation found:

  1. In 20 percent of court file cases examined within the study, neither party disclosed any pension other than a basic state pension.
  2. In 66 percent of cases, one or both parties disclosed a pension other than basic state pension but no pension order was made.
  3. In just 14 percent of cases examined within the study a pension sharing order was made.

Although some 10 years on I would not be surprised if these statistics have remained largely the same.

Balancing Parenthood and Pension: A Fairer Approach to Asset Division

Of course it’s important to have a roof over your head and especially where there are young children involved to maintain a degree of consistency and security, however, it’s important to consider the longer term effect of not having a pension fund or other source of readily realisable asset to provide added financial security.

I often find it is the mother who forgoes her career to look after the children which enables the father to continue on a career path or to continue to build a business.  This can lead to a disparity in pension provision.  A pension asset is very different to bricks and mortar and we should not automatically assume it is ‘like for like’ on an asset division.  Depending on the type of pension arrangement it may be advisable to gain a pension’s expert report, especially with higher value pension provision.  The expert’s report will take into account ages, sex, assumed growth rate and the type of schemes in place. The result will be a fairer reflection of it’s true worth to be considered as part of the overall split of assets.

Empowering Divorcing Couples for Informed Negotiations

I recommend that you understand your short, medium and longer term financial needs, which can be quantified by creating a cash flow forecast taking into account the needs of each of the parties involved. It’s important that assumptions used in the creation of a forecast are reasoned and reasonable. What I mean by assumptions are things like long term inflation, assets and investment growth, business values, maintenance payments and pension provision including state benefits. This is something that our team at Piercefield Oliver have been able to create successfully for divorcing couples in order for them to agree a reasoned and reasonable outcome for both of them.

It is important to ‘know your numbers’ when embarking on a separation or divorce. This will help empower you to negotiate from a position of having a greater understanding of knowing what your needs are.

So in summary, DON’T ignore your pension provision, we are all living a lot longer and having a fund which facilitates income in retirement is important for all of us.

Know your numbers and plan ahead, only when you have done this can you feel confident in coming to an agreement which works for you both.

Effective financial planning for divorce involves more than just dividing physical assets. Pensions, often overlooked, play a crucial role. Seek expert pension advice in Cheltenham to assess pension values accurately. By understanding your financial needs and negotiating from an informed standpoint, you can achieve a fair outcome. Remember, knowing your numbers empowers you during separation or divorce.

Louise Oliver

Founding Partner
Piercefield Oliver