A ‘Pension Attachment Order’ in England and Wales, previously referred to as an ‘Earmarking Order’, sets out how all or part of an occupational or private pension will be divided between spouses following divorce.
It is important to bear in mind that while a Pension Attachment Order offers financial protection following divorce or dissolution, it does not provide a ‘clean break’. This means that both ex-spouses will continue to be financially tied after separation.
In England and Wales, Pension Attachment Orders can include any combination of pension income, tax-free cash and/or a lump sum up on death. Earmarking Orders in Scotland only include tax-free cash and/or a lump sum upon death; pension income is not included.
How does a Pension Attachment Order work?
If the court issues a Pension Attachment Order, it compels the scheme provider to make a payment (or payments) from the pension pot to the member’s ex-partner when it becomes payable. The pension policy itself remains the name of the original owner.
Depending on the terms of the order, one party may receive a percentage of their ex-spouse’s occupational or personal pension either in the form of a lump sum or a regular pension payment.
If the pension holder dies, no further money will be paid from the pension to the ex-spouse. In addition, if the person receiving a share of their ex’s pension through a Pension Attachment Order remarries, any regular payments will cease.
Advantages of a pension attachment order
The advantages of a Pension Attachment Order are as follows:
- Gives a person without a pension financial security in their retirement following divorce
- Enables a tax-free cash benefit, pension income, and death-in-service benefit to be earmarked
- If your ex-spouse switches to a new pension scheme, the order will apply to that new scheme
- You will not pay any income tax on money received from your ex-spouse’s pension
Disadvantages of a pension attachment order
It is also important to consider the disadvantages of a Pension Attachment Order, as follows:
- Does not allow for a financial clean break between divorcing parties
- There is no certainty as to when you will start to receive payments from your ex-spouse’s pension and how much you will receive
- You will only receive benefits from the pension scheme if the member decides to draw from their pension
- In the event that either party dies, payments from the pension pot will end (unless lump sum death benefits are included in the order)
- Reduced pension savings (see below)
- Investment risk as the pension can earn less than expected
- May be lost in the event of remarrying or entering into a civil partnership (see below)
Potential for reduced pension pot
If your ex-spouse member has a ‘defined benefit pension’, any income you receive under the Pension Attachment Order may be less than you initially expected. The value of the pension may be less in the future if they decide to retire early, their income reduces (hence reducing the amount paid into the pension), or if the scheme was in the Pension Protection Fund (PPF).
Remarriage
If you receive part of your ex-spouse’s pension and later remarry, you must inform the pension provider. In this scenario, the Pension Attachment Order will cease. As a result, you will automatically lose your right to the pension, and any regular payments will be stopped.
Due to the complexities and potential pitfalls of entering into a Pension Attachment Order, it is important to seek the guidance of a family law solicitor. They will assess your circumstances and determine if this type of order will be advantageous for you. They may recommend a different type of order that is more suitable for your needs, such as a Pension Sharing Order.
Pension sharing order vs pension attachment order
While they sound similar, Pension Sharing Orders and Pension Attachment Orders are not the same. A Pension Sharing Order results in the available pension/s being split following divorce, leaving each party with their own completely separate pension fund. As such, a Pension Sharing Order allows divorcing couples to achieve a clean break. On the other hand, a Pension Attachment Order keeps the pension pot as is and requires the pension provider to set aside and give a percentage to the receiving party when payments start being drawn down. In other words, where a Pension Attachment Order is a form of maintenance paid by one divorcing party to the other directly from their pension fund, a Pension Sharing Order splits the pension/s into separate funds and allows a clean break.
