Pensions on divorce
Disclaimer: I am an accredited mediator - not a qualified lawyer or pensions expert. The information in this article is to simply explain issues impacted by divorce and separation. You should not treat this information as legal or pensions advice. It is always advisable to take full advice on your particular circumstances from your solicitor or a pensions expert.
Please note that this post was written in January 2021 and will not be up-dated. The rules relating to pensions change rapidly, so you will need to make your own enquiries as to accuracy.
There’s no denying - pensions are super complicated! Most of us don’t really understand the terms used or even what our pension statements mean.
There are different types of pension and pension providers use different terms that often make no sense to the layperson. This means that most of us pay little attention to our annual pension statement until we are beginning to think about retirement.
But I am afraid that if you are getting divorced, you cannot afford not to understand your pensions and take them into account in your discussions about finances.
The good news is that a fabulous new booklet has been published by Advice Now, titled ‘Pensions on Divorce’. It provides clarity on a complex subject, advises on the steps you need to take and where to look for advice. It is essential reading for anyone who is getting divorced and who has a pension.
You can access it here;
The booklet answers the questions that often come up in mediation, which I’ve detailed below.
Do pensions need to be taken into account in reaching agreement on our finances?
Yes! Always! When considering your finances on divorce, all assets that belong to either of you get taken into account and not just assets in joint names.
This often comes as a surprise to people in mediation. They think that because the pension is held in one person’s name, it stays in their name and cannot be touched by the other.
But this is not true.
Your pension is an asset, just like any other asset and needs to be taken into account. It is also important because you will both need funds to live off when you retire.
What about if my pension was accrued before our marriage?
That on its own doesn’t mean that it won’t be taken into account. See page 7 of the booklet, where it says, “If one person’s needs require it, the court can look at any of the things of value, called ‘assets’, to come to a fair outcome.”
What information do I need about my pension and how do I get it?
When I ask clients for their pension information in mediation, they often provide an annual summary or statement. But this doesn’t provide enough information for our purposes. The booklet sets out on p24 exactly what information is required and how to obtain it.
A good way to start is to list down all of your existing pensions. Or maybe even list the jobs you have had to check whether you had a pension with that job.
Then you need to make contact with your pension providers and ask them for the cash equivalent value of your pension for divorce purposes. There is a form you can use for this purpose – Form P, which you can access from the booklet.
If yours is a defined benefits pension (most public sector pensions), then you will also need to ask for a benefit statement.
Lastly, ask your pension provider for a full transfer pack for divorce. This will explain their process for dealing with pensions on divorce.
It can take up to three months for this information to be provided, even longer during Covid, so get onto it as soon as you can. Make a record of when you requested the information and keep following it up until you have received it.
Most people are entitled to one free cash equivalent statement in a year.
When should I get pensions advice?
As already explained, pensions are complex. It is also very difficult to compare different pensions on a like-for-like basis. It is not as simple as comparing the cash equivalent transfer values.
So, unless your pension is small, it is almost always worthwhile taking pensions advice. See p29 of the booklet for more information on this, but a general rule of thumb is that if your pension is worth over £100,000 you should seek expert advice.
Where to get pensions advice?
This is one question that is always asked and, which I don’t think is properly answered in the booklet, or anywhere. The problem is that there is no formal accreditation for pensions advisers experienced in providing advice on divorce.
Therefore, your best place to start is by asking your mediator or solicitor for recommendations. Even then, you should make your own enquiries of the adviser to ensure that they meet your needs.
Can we take joint pensions advice?
Yes! Indeed I usually suggest this to my clients. You have to be careful how you instruct them and to ensure that their advice is impartial (see p33), but given the cost of pensions advice it is worth considering.
How do we instruct a pensions adviser?
If you are working in mediation, then we will usually have had discussions around your thoughts on the pensions and your intended outcome on them. We will usually have discussed whether you are thinking of a pension share or offsetting (see P41 for the options). Therefore we provide the pension adviser with the end in mind and the questions that you want answering in order to make your final decision. Once we have done this, it is normal practice to ask your solicitors to draft the pension advice instruction letter in order to ensure that everything is covered.
If you have pensions and you are getting divorced, read the booklet! It only takes half an hour or so and it explains everything including the costs of advice, how long it takes and all the other information you need to know.
If you are interested in mediating about your pensions, or other finances on divorce and would like to know more about how it works, then contact me at firstname.lastname@example.org or call me on 07706 513496.