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Why is it important to consider pensions on relationship breakdown?

Aside from the family home, pension rights can be the single largest asset upon marriage or civil partnership breakdown. We find that this is particularly the case where a person has served as a police officer, a member of the armed forces or in other public sector roles.

Despite this, a recent survey carried out by Which? found that only 15 per cent of divorcing couples include pensions in their financial settlement. There could be many reasons for this, including that people often underestimate the value of their pensions, given that the benefit to them feels rather distant.

However, in reality, overlooking a pension can leave former spouses or civil partners with insufficient income on retirement. It is, therefore, important to understand that there are a range of options available when dealing with pensions. There are also implications for each of the different options, so it is important to obtain legal advice when considering your pensions, to ensure that you achieve the right outcome for your circumstances.

So, what are the options when considering pensions?

Pension offsetting

This is a process whereby the value of a pension is offset against the value of other assets held between the parties. Effectively, the non-pension assets are distributed more in favour of one party to take into account that the other party will have a greater pension provision. This does not involve the court making a pension order and the pension remains with the pension member.

Pension sharing

Using this method, an existing pension arrangement is divided between the parties. This requires a pension sharing order from the court, which will state how much of the pension should be transferred from one party to the other. This provides the recipient with a separate pension fund of their own. However, not all pensions are capable of being shared.

Pension attaching

This requires the pension member to pay a percentage of their pension income to the other party when the pension becomes payable. The recipient effectively “attaches” themself to the pension, as opposed to the pension being divided into two separate pension funds.

Financial advice

Where appropriate, we will suggest the use of pension experts (such as independent financial advisors and/or actuaries) to gather relevant information about your pensions and consider the exercise of the court’s powers in your specific circumstances.

Financial remedy order

Whichever option is chosen, a financial remedy order setting out the terms agreed between the parties, or determined by the court at a Final Hearing, should be drafted and sealed by the court. This will include details of how the pensions are to be dealt with, whether that be for the parties to retain their own pensions, or for the pension to be shared or attached.

Ultimately, it is important not to forget about pensions when trying to reach a financial agreement.

If you do have any questions regarding the content of this article, please do not hesitate to contact us.

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