Pensions

My partner's pension is worth about the same as the equity in our house. Should I just accept the house instead of any pension rights?

Whilst this may seem the simplest option, you should consider the alternatives. One pound of pension is rarely equal to one pound in the house. By accepting the house, you are giving up all of your future rights to your partner’s pension, and so you need to calculate how much retirement income you can accumulate in your own right either by saving or releasing equity later. There are methods of compromise which could offer your husband a share in the equity of the property to be released at a later date, in return for a share of his pension.

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What are the options regarding pensions on divorce?

There are 3 main optionsā€ Offsetting, Attachment (Earmarking) and Pension Sharing.

Offsetting means balancing the value of the pension against another asset, normally the house, which is simple, but not always ideal.

Attachment (formerly Earmarking) means that a percentage of the member’s pension is set aside for the ex spouse to claim on retirement. The benefits are not necessarily watertight, and would be lost if the ex spouse remarries or the member dies.

Pension Sharing offers a clean break, and allows a percentage share of the member’s pension to be transferred into a pension scheme in the ex spouse’s name. In some circumstances (normally with Public Sector schemes), the ex spouse becomes a “Pension Credit” member of the pension scheme in their own right. In the majority of cases, the pension share has to be transferred into a private pension arrangement of the ex spouses choosing, and advice is normally required.

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What is a Pension Cash Equivalent Transfer Value/ Cash Equivalent Benefit statement?

A CETV or CEB statement reflects the capital value of the pension benefits (i.e income and/or potential lump sum) that have been accrued to date, or which are in payment.

With a money purchase scheme, the CETV is purely the transfer value of the funds that have accrued to date. The transfer value may be different to the actual fund values, depending on scheme penalties.

The CETV of final salary schemes rarely reflects the true value of the accumulated pension rights. If the scheme is short of money, the transfer value may be reduced to reflect the underfunding position. This is a complex area and proper financial advice should be sought.

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Can a pension that is already in payment be shared?

Yes it can, however, the receiving spouse won’t be able to take a pension commencement lump sum (currently 25% tax free) from any benefits on transfer.

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Why shouldn't I settle for a Pension Sharing Order that simply gives me 50% of my partner's pensions?

In most cases that could leave you worse off than them, for a number of reasons. If they have benefits from more than one pension scheme, it could make a big difference which one (or ones) the pension sharing orders are made against. Seek advice.

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Can I take a lump sum from the Pension Share I am about to receive?

It depends on where your Pension Share is transferred to. If you transfer to a personal pension plan, then you have to be between 55 and 77 to take any lump sum if it is available. If your former spouse has started to take the pension in any way, regardless of whether they took any lump sum or not, you will not be entitled to a lump sum when you transfer the benefits into your own name. If you become a “Pension Credit” member of a final salary pension scheme, then your retirement age will be dictated by the scheme, and you may well become entitled to a lump sum.

Can the Basic State Pension/State Second Pension or SERPS be shared?

The Basic State Pension can’t be shared, however under current legislation, the National Insurance record of one spouse, if better, may be substituted for the other at no cost. The extra state pension gained from substitution is lost if the recipient remarries before reaching state pension age.

The Additional State Pension (SERPS or S2P) can be shared.