Pensions on divorce and dissolution
News article published on: 20th June 2012
One of the matters which the law requires to be taken into account on divorce or dissolution is each person’s pension rights and any rights which they stand to lose as a result of divorce or dissolution.
Provided that a petition has been filed after 2000, it is possible for the court to make a pension sharing order in relation to the pension of one party in favour of the other party. A pension sharing order must specify the percentage of the party’s pension which is to be transferred to the receiving party.
There are some limitations on the use of pension sharing orders. For example, it is not available for judicial separation. This is one reason why it may not make financial sense to pursue a decree of judicial separation rather than a decree of divorce or dissolution as it limits the financial remedies available to the parties.
There are two main types of pension. The first is the final salary scheme (also known as a defined benefit scheme). These pay an income on retirement which is based on a percentage of the employee’s salary. Final salary schemes are becoming less common due to the prohibitive costs of running them, however, there are still many people who are members of such schemes. Money purchase schemes (or defined contributions schemes) are ones where contributions are made to a pension fund with which an individual can purchase pension benefits such as an annuity, or they can choose to take a tax free lump sum of part of the pension fund when they retire. Money purchase schemes do not provide any guarantee as to retirement income as the income will depend on the amount of money paid in, investment performance of the fund and age of retirement.
It is important not to ignore pensions because often they are the most valuable asset in a marriage or civil partnership after the parties’ home. They are also often imbalanced in favour of one party, particularly if one party has stopped work to bring up children. They are, however, notoriously difficult to value and in certain situations specialist advice may be required, for example from an actuary, in order to ensure a fair outcome.
For more information on this issue or any any other family law issue including if you are seeking a divorce.
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