A pension sharing order (PSO) or pension compensation sharing order is issued by a court and sets out the percentage of pension fund that will be split between divorcing parties. This can include defined benefit and defined contribution pensions. State pensions cannot be shared. Unlike other marital assets, a pension cannot be split by a pension provider without a court order in England and Wales. Putting a pension order in place allows separating couples to achieve a clean financial break, and the arrangement can be implemented on any day agreed upon.
It is important to understand that in England and Wales, the exact amount of any pension is never guaranteed as it is expressed as a percentage of the cash equivalent (CE), which can change over time due to fluctuations in the stock market. In addition, in order for the other party to receive a portion of a pension fund, they must become a member of the pension scheme or transfer the amount to a pension scheme in their name.
Pension sharing order process
The first step in arranging a pension sharing order is for you and your former spouse to get a valuation of your existing individual pensions from your pension provider/s. This should happen as part of the normal financial disclosure process when reaching an agreement on the split of marital assets (Form E). Remember to advise the pension provider that the information is needed following your divorce. The pension provider will provide the valuation of pension rights and benefits in the following information:
- The cash equivalent (CE).
- The method of calculation of the CE.
- The benefits included in the CE.
- Information as to whether an internal or external transfer will be offered.
- The costs associated with a pension sharing order.
Based on the figures provided, a decision can then be reached regarding whether a pension split is required and, if so, by how much. This information should also be included in the financial disclosure in Form E.
The person with the pension must then send the valuation to the other party within seven days of receipt, along with the pension provider’s name and address.
A pension-sharing application must then be submitted and served on the pension provider. It is important to engage the services of a family law solicitor who can guide you through this process. The court will then arrange for the first appointment to hear the matter. If necessary, the court may request that the pension provider completes Form P to identify any concerns, such as ill health and/or underfunding.
It is useful to understand some of the terminology used by pension providers when entering a pension-sharing order:
- Pension lifetime allowance: this refers to the total amount you can have in pension savings without incurring a tax charge.
- Pension credit: a weekly benefit to boost your income.
- Pension debt in a pension sharing order: if one party is required to give up part of their pension to the other party in a pension sharing order, this is referred to as pension debt.
Delay or failure to implement pension sharing order
In general, the timescale to implement a pension-sharing order is around 4 months. Remember that pension providers can sometimes take several weeks to respond to a valuation request. Hence, the sooner this can be done, the faster the whole process can be completed. Ultimately, it is the responsibility of the pension trustees to implement the pension sharing order. However, in most cases, it is the scheme administrator who will handle the process.
Can I take a lump sum from a pension-sharing order?
No, unfortunately, while a pension-sharing order may result in a lump sum being transferred, it is normally not possible to withdraw the lump sum immediately.
Can a pension sharing order be cancelled or varied?
Yes, under the Matrimonial Causes Act 1973, a court can vary a pension sharing order, but only if it is done before the final divorce order. The variation application must also be made before the pension-sharing order takes effect.
What happens to a pension sharing order on death?
It is important to ensure that the person who drafts the pension sharing order protects against the death of the transferor (the person whose pension is being transferred) after the final divorce order but before the pension sharing order comes into effect. Ordinarily, if a transferor dies after the pension transfer day, their death will not affect the pension share which will have taken effect. However, if the transferor dies before the pension transfer day, the pension share transfer will fail.
