Yesterday’s budget announcements by George Osborne has focussed many minds today on their pension pots, and what the new greater flexibility may mean for them. The question of what happens to pensions on divorce though does not appear to be a question that many couples are asking or answering.
In 2000 the “pension sharing order” was introduced, which provided that ownership of a pension could be transferred from one spouse to the other, by order of the court. The court order will include a percentage figure, which is then transferred from the existing pension pot to a pension pot belonging to the other spouse. However, a recent study by Cardiff University* has found that despite 120,000 divorces taking place in 2011 in England and Wales, fewer than 10,000 pension orders were made during that year. The study discovered that offsetting pensions against non-pension assets was a popular choice for separating spouses. This was often done against legal advice, and despite the project expert assessing two thirds of the cases as having inadequate or unclear pension valuations.
Pension valuations can be easily obtained by contacting a pension provider or for state pensions, via the online pension statement service on the gov.uk website**.
A great many cases that we deal with at Rainscourt Family Law Solicitors involve pension sharing orders, and the study did find that pension sharing orders were more common in high net worth divorce cases, and also were more likely to be made when both parties were legally represented by family law solicitors. A pension report from an expert will usually be obtained in a case involving pension assets, to accurately value the matrimonial pension pot, and explore different options for division. Pension sharing calculations are carried out by the expert to determine the effect of sharing different amounts of the pension pot.
The conclusion of the study is that “pension sharing orders appear to have remained the prerogative of a relatively privileged minority.” Automatic enrolment provides that the vast majority of workers in this country are currently being enrolled into a pension scheme by their employers, and perhaps this, plus the increased pension pot flexibility now being introduced by the government, will encourage the more frequent use of the pension sharing order on divorce.
* Cardiff University report by Hilary Woodward with Mark Sefton: http://orca.cf.ac.uk/56702/
NB An alternative to Pension Sharing is a Pension Attachment Order or “Earmarking”, which is less frequently used.
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