The rising divorce rate among couples of pensionable age has meant that more and more people have to consider pension rights as part of a divorce settlement -or as part of a civil partnership divorce settlement [as the same considerations apply to dealing with pensions following a civil partnership dissolution]. This is an extremely complex area, and specialist legal advice from experienced divorce solicitors should always be sought. However, a working knowledge of some general principles and terms can make the whole thing much easier.
1. Sharing pensions
State pensions are paid to individuals, and therefore cannot be shared (although Additional State Pensions can be). There is also scope to substitute one partner’s National Insurance record if it is more favourable, although if you receive this substitution, you should realise that any extra entitlement it gives you will be lost if you remarry before you reach pensionable age. Other types of pension can be shared, even if they’re already paying out, although you may lose commencement lump sum benefits on transfer.
2. 50% shares and house values
Many people think that settling for a 50% share of their former partner’s pension is the fairest deal. However, your partner may have benefits from more than one pension coming in, so you need to be very careful about which pensions the sharing order is made against. Similarly, accepting your house in lieu of a claim against pension rights may not be the best deal, even if the value seems broadly the same. Remember that you’re trading off the equity of the house against all future pension rights, so you could well be losing out in the long run.
3. Lump sums and Cash Equivalent Transfer Values
If your share of the pension is transferred to your personal pension plan, and you’re aged between 55 and 77, or if you’re designated a “Pension Credit” member of a final salary scheme, then you may be entitled to take a lump sum. If your former partner has already started drawing on the pension, however, then you won’t be.
The Cash Equivalent Transfer Value (CETV) is a term that is often encountered in pensions settlements, and simply means the accumulated capital value of all pension benefits to date, including all projected income and lump sum benefits.
If you’re going through relationship breakdown and want to know more about what will happen to your pension fund upon divorce, contact our specialist family solicitors today on 01264 364433, 01722 422300 or 01980 622992.