As opposed to a pension transfer, through which you can combine pension assets, a pension sharing order is a way of pension splitting for divorce. Untangling your finances after a divorce can get complicated, especially when shared pensions are involved. That’s where pension sharing on divorce comes in.
Pension sharing order: summary table
|❓ What is a pension sharing order?||A pension sharing order is a request to split pension assets once you have filed for divorce or dissolution of a civil partnership|
|🤔 What is a CETV?||CETV stands for cash equivalent transfer value, which is the value attributed to the pension benefits to be received.|
|⌛ How long does it take to finalise the pension sharing arrangement?||The pension provider must begin executing the PSO within four months of having received the request documentation|
What is a pension sharing order and how do I apply for one?
If you’ve filed for divorce or to dissolve a civil partnership, one of the options that you can apply for to split up pension assets fairly is a pension sharing order. You can request a pension sharing order from the court handling your divorce or dissolution, which will issue the order when divvying up the assets, sending all the necessary information to the pension provider to implement the order over a reasonable amount of time.
How does pension sharing order work?
If you decide to file for a pension sharing order, the solicitors of the divorcing parties will determine the value of the pension and establish a fair division of the assets, consulting pension experts where necessary. The court handling the divorce proceedings will then issue a pension sharing order (PSO) according to the terms established and agreed upon by the two parties, which will be sent to the pension provider for implementation, in a reasonable timeframe.
The total amount to be received by the parties is called the transfer value, or CETV, the PSO establishes the designated percentage of the transfer value that each party is entitled to receive, usually expressed as a percentage. This value is established the day before the PSO goes into effect.
What is a CETV?
CETV stands for cash equivalent transfer value, which is the value attributed to the pension benefits to be received. The pension credit owed from the pension divorce settlement is usually expressed as a percentage of the CETV, since the total value of the CETV may vary over time, depending on the type of pension scheme, since a self employed pension will accrued value differently than other savings mechanisms like Stocks and Shares ISAs. In order to issue a PSO, it is first necessary to calculate the CETV. This is more complicated than it may seem, for which the solicitors in divorce proceedings may refer to experts to make sure the CETV is calculated correctly.
What are the timelines?
Pension sharing order timescales can vary depending on the ease with which you are able to calculate the CETV. Once the parties have come to an agreement on the percentage of the transfer value each side is entitled to receive and the court has issued the pension sharing order, the pension provider has up to four months to begin carrying out the order, though it may not always take so long. However, the four-month countdown will begin once the pension provider has received all the information necessary to implement the PSO. Delays in executing the PSO will likely be due to delays on the part of your ex-spouse’s solicitors in providing the pension provider with the necessary information.
Once the pension provider has begun executing the PSO, you should check to make sure that the correct amount of pension benefits are being shared. If you suspect that there has been an error in the pension benefits you receive, you should request a statement of your benefits from the pension provider for more information if you do not already receive one.
If you find that there has been a mistake in the distribution of pension benefits, you may need to find a solicitor in order to take action.
How long does it take to finalise the pension sharing arrangement?
Once the parties have come to an agreement on the PSO, the court will finalise the PSO by sending the documentation to the pension provider. The provider must begin executing the PSO within four months of having received the documentation. However, it may be much more than four months from when the proceedings begin to when the pension credits are provided.
When is pension sharing a good idea?
Pension sharing provides for a “clean break” in the divorce settlement, as well as a fair division of the couple’s assets. Pension sharing might make sense for you if you are looking for a clean break that is more or less immediate. Note, however, that once the order has been filed and the pension transfer value has been calculated, the pension sharing order cannot be changed.
If the value of the pension is particularly high compared to the other assets to be divided, it may also be a good idea to apply for a pension sharing order, especially if you’re close to retirement age and will have difficulty building up a similar amount of pension benefits in a short amount of time. While it’s never too late to learn how to invest money on your own, if you are in your 50s and you don’t have another form of retirement income set up for yourself, filing for an PSO may be a good way to supplement your 50s retirement savings. Under the current pension sharing regimen, you are eligible to start receiving pension credit at the age of 50, before the retirement age.
Pension sharing might not be the best option for you if you’ve already amassed a sizable pension, or you aren’t willing to share other assets as well.
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Pros and cons of pension sharing
If you are trying to decide of a pension sharing order might make sense for you in your divorce, here are some points to keep in mind as you make your decision:
- PSOs provide for a “clean break” that is more or less immediate
- Pension sharing provides for pension credits for both parties in retirement
- Pension credits provided through PSO aren’t affected by remarriage or death or the ex-spouse
- Pension providers usually charge a fee for pension sharing
- Future income of one party will be reduced
- PSO’s may affect the lifetime allowance of the recipient
What happens if there is a mistake in the pension sharing process?
If you suspect that something has gone wrong in executing the pension sharing order, because you’ve either received an under allocation or over allocation of pension credit, you should verify first with the pension provider to ensure that the right amount has been provided. If the pension provider has made a mistake, they are legally obliged to rectify the situation.
If you suspect that there has been a misrepresentation of the pension assets to be divided, you may need to refer to your solicitor. If you feel that your solicitor has not adequately represented your rights in the pension sharing arrangement, or they made a mistake, you may have grounds to take them to court for negligence.
Negligence in divorces
Pension sharing has been around for more than twenty years, and yet it is not uncommon for a pension settlement to be drawn up according to an inaccurate value of the pension. If you feel that in the divorce proceedings your legal representative did not provide full or accurate guidance on pension sharing orders, or did not receive the expert advice necessary to advocate for a fair division of the couple’s assets, you may have a claim for negligence. To make your case, you should seek out additional professional help.
What about pensions that are already paying out?
While the process is a bit more complicated, and the fees for enacting a PSO may be higher, it’s possible to file for pension sharing from funds where pensions benefits are already being received. You can check the pension sharing order costs with the individual pension provider.
How does pension sharing impact my Lifetime Allowance?
Any pension credits that you receive from a pension sharing order will contribute to the total amount of tax free savings benefits that you receive as part of the Lifetime allowance. Those who are receiving an PSO credit need to be careful that the benefit does not push them over the limit.
What are the advantages of pension sharing?
PSOs provide for a relatively easy split of assets that is more or less immediate, providing for pension credits to both parties in retirement.
What are the drawbacks of PSOs?
The downside of PSOs is that pension providers usually charge a fee for pension sharing, and the future income of one party will be reduced.
How do I know if I have grounds to file for negligence in the proceedings?
If you find that the PSO settlement has been drawn up according to an inaccurate portrayal of pension assets, you can make a claim for negligence.