Pensions are often dealt with as part of the financial settlement on divorce or separation.

A pension is a future asset of a party as well as a future source of income, and as such, does therefore have to be taken in to account.

A pension scheme cash equivalent transfer value (CETV) is used in pension calculations. This is the amount of the fund needed to provide the pension in the future. The CETV is not treated in the same way as property, or other assets. It needs special consideration.

With certain pensions, the CETV does not provide an accurate reflection of the fund value for the scheme. It is therefore sometimes necessary to ask a pension expert to prepare a formal report to assist the solicitor in deciding the fairest way to deal with the pension asset.

Pensions can be dealt with in the following ways:-

Pension sharing

This is only available for divorce proceedings that started after 1 November 2000. This is where part of one party's pension is taken away and given to the other. A separate pension fund is then set up in that persons name. In this way, each party will both have an entirely separate pension fund.

Offsetting

This is where one party is compensated for the loss of pension rights by giving them a larger proportion of the other assets. For example one party might keep the property, and the other retain their pension.

Earmarking

This is where the pension remains in one party's name however, part of it is ring fenced for the other party. In this way, when the pension becomes payable, the other party will receive some of the payment.

Until 1 December 2000, earmarking was the only way a pension could be shared. Earmarking has one major disadvantage in that it is dependent on one parties pension rights. Therefore, if they decide to delay receiving their pension until they are 67 for example, then the other party will also not receive any payments until then. In addition, the party with the benefit of the pension share will lose all claim to it if they predecease the person in whose name the pension is held.

Currently, in most cases the pension is dealt with by way of pension sharing or offsetting.

 

If you would like help with any of these issues, please call to speak to Rachael Smethurst, head of our family team, on 01865 781181, or email.