Pension sharing is the legal splitting of a pension in to two separate pension pots as the result of a divorce or dissolution of a civil partnership. Once split, the two pensions are completely unrelated and are managed independently. If one partner subsequently dies, or retires there will be no effect on the other’s pension.
Engage Us Early on
Sharing your pension doesn’t have to mean a 50:50 split. Engaging us early on can make a significant difference to your chances of getting what is rightfully yours by ensuring your full situation is taken in to account. Sometimes we engage an actuary to help prove your case but this is often not required.
The pension share is a percentage of your pension’s Cash Equivalent Value, but this is a purely mathematical calculation. It doesn’t put any value on, hidden benefits. For example, you might want to keep hold of a pension with a Guaranteed Annuity Rate, or a Final Salary Pension Scheme. You might be more keen to give away an old and inefficient or expensive pension. Our advice will help you work out the real value to you of your Cash Equivalent Value, or work out the real value of the pension share you have been offered, or we can help you both to arrive at an equitable split with the most efficient share.
Once issued, the pension will be split in the proportion laid down in the Pension Sharing Order / Pension Sharing Annex. The actual transfer can take place via an External Transfer or Internal Transfer.
While pension sharing is the most common way of splitting a pension, there are alternatives ie Pension Offsetting or Pension Earmarking. One of those might be a better option for your circumstances. In addition the final financial settlement will take into account other assets such as property or business interests.
An external transfer means the pension share must be moved from the pension scheme member to the ex-spouse. Some pension schemes, and all the personal pensions we have ever seen, do not have the facility to keep the money in the scheme but change the name. In those cases, the ex-spouse must move the money out of the scheme. That is an external transfer. The money must be paid into another pension scheme. It must not be paid out in cash.
Examples of pension schemes and policies that we have encountered that have insisted on an external transfer are Standard Life, Legal & General, Prudential, Clerical Medical, Coates Viyella and IBM.
Some pension schemes have the capacity to provide the pension share within the scheme. This includes the public sector schemes, plus the Universities Superannuation Scheme and some former-public sector schemes. An internal transfer means that the money remains in the scheme, and the ex-spouse becomes the owner of the pension share. The money stays within the scheme and is paid a pension credit into the name of the former spouse.
Will I get a choice between an external transfer and an internal transfer (pension credit)?
Usually, no. Most schemes offer only one or the other. Recently, we have noticed a few schemes offering a pension credit or an external transfer, including the Universities Superannuation Scheme and SmithKline Beecham Pension Plan.
If I am offered a choice, which one should I take?
That will depend on you, and what you are offered. We can help, get in touch by phoning or filling in the form on the right hand side
Can I take my pension share as cash?
No, it must be put directly into a pension in your name. You may be able to draw it straight away, if you are over 55.
I’m over 55. Can I definitely draw the pension straight away?
When you can.
If you are over 55 and the pension share is implemented via an external transfer you can draw your pension immediately. You may also be able to draw your pension from age 55 if the share is implemented via an internal transfer and the pension scheme rules allow it.
Why you might not.
If your pension share was implemented as an internal transfer, which created a pension credit, then the scheme rules and the scheme trustees may dictate when you can draw your pension. Some schemes do not permit early retirement for pension credits.
This can create a problem if your spouse is older than you: Let’s say that “Bob” spouse will pay ‘maintenance’ (now officially known as periodical payments) until his retirement, but “Sally” cannot draw her pension credit until the scheme rules permit it. “Sally” may then have a shortfall in income until she can draw the pension credit.
He’s already drawing the pension. Is it too late to share it?
It’s not too late. The pension provides its cash equivalent calculation, and you agree a share. After the pension share is completed, the pension in payment is reduced and the other person receives it, and can make his/her own decisions about drawing the pension. They may draw it straight away, if they can, from a different pension company, or possibly from the same pension scheme.
Do pension sharing orders always give the pension from a male spouse to a female spouse?
No, it can go either way round