Pension sharing explained: a simple guide

Divorce or the dissolution of a civil partnership can be emotionally and financially challenging. One of the key financial aspects to consider is how pensions are divided. This article explains the key aspects of pension sharing, including eligibility, valuation, implementation, and the options available to ex-spouses in a clear and approachable way. 

What is pension sharing? 

Pension sharing is a way to divide pension benefits as part of a financial settlement following divorce or civil partnership dissolution. It has been available since 1 December 2000 and allows one party to receive a portion of their former spouse’s or civil partner’s pension. 

Pension sharing can be arranged either through mutual agreement or by a court order. In Northern Ireland, it can only be done via a court order, while in Scotland, most financial settlements, including pension sharing, are resolved through negotiation. 

Who can apply for pension sharing? 

A pension sharing order can be issued by courts in England, Wales, Scotland, and Northern Ireland if at least one party is domiciled or habitually resident in the UK. However, UK pension providers are not required to comply with foreign court orders. 

Pension sharing is not available for divorces that were finalized before 1 December 2000, unless new proceedings are initiated under special legal provisions. 

Which pensions can be shared? 

Pension sharing applies to occupational pensions, personal pensions, SERPS/S2P, Pension Protection Fund benefits, and unregistered schemes. However, it does not apply to the Basic State Pension, State Graduated Pension, Single-tier State Pension, spousal pension benefits from a deceased spouse’s pension, or pensions with less than three months of qualifying service.

The pension sharing process

1. Obtaining a pension sharing order 
   A pension sharing order is typically part of a divorce settlement. In England, Wales, and Northern Ireland, the division is expressed as a percentage of the Cash Equivalent Transfer Value (CETV). In Scotland, it can be either a percentage or a fixed amount. 
2. Information disclosure by pension schemes 
   Both parties are entitled to receive information about the pension, including: 
   1. The value of pension benefits 
   2. Transfer options for the pension credit 
   3. Any associated costs or fees 
3. Implementing the pension share 
   Once a pension sharing order is granted, the pension provider has four months to process the split. This period may be extended in cases of scheme winding-up or administrative delays.
   The pension is divided into a ‘pension debit’ (a reduction in the original member’s pension) and a ‘pension credit’ (the portion allocated to the ex-spouse). 

Options for the ex-spouse receiving the pension credit

Ex-spouses or civil partners have several choices for managing their pension credit. They can transfer it to another pension scheme, retain benefits in the existing scheme if the rules allow, or, if the pension is already in payment, receive a portion as an annuity.

Valuation of pension benefits 

The Cash Equivalent Transfer Value (CETV) is used to determine the pension’s worth. Defined contribution pensions use the total fund value, while defined benefit schemes rely on actuarial calculations. 

Factors that affect the CETV: 

• Early withdrawal penalties may impact the pension’s value. 
• Underfunded defined benefit schemes may adjust CETV downward. 
• If there are concerns about fairness, CETV calculations can be challenged in court. 

Why financial advice is essential in pension sharing

Pension sharing provides flexibility but also introduces complexity. Seeking expert financial advice can help divorcing parties and pension scheme trustees make informed decisions. 

Areas where advice is particularly beneficial include: 

• Choosing the best option – Determining whether to transfer, retain, or take an annuity 
• Understanding pension sharing choices – Evaluating the advantages and drawbacks of each route
• Earmarking vs. maintenance orders – Assessing which financial arrangement is more suitable 
• Ensuring fair pension valuations – Confirming CETV accurately reflects pension value
• Investing lump sums wisely – Making informed decisions on tax-free cash investments
• Restoring pension benefits – Finding ways to rebuild pension savings post-divorce
• Managing business implications – Reviewing the impact of pension division on family businesses
• Considering life assurance – Protecting financial stability if pension benefits are affected
• Working with solicitors – Ensuring legal professionals have the necessary financial insight 

There are many rules relating to pensions in divorce settlements that can affect the outcome. Getting independent financial advice early on in the process is recommended and specialist, professional advisers can be key in helping clients review their situation objectively, as well as helping navigate what may be uncertain territory. 

We use cash flow modelling and budgeting capability to assess and identify monetary needs and ensure any financial settlement is sufficient for its purpose. With experience in ever changing areas such as pension sharing, financial protection and investments, our team is here to help through all stages of the divorce process. 

If you would like to know more about the support we can offer clients during the divorce process, download a copy of our 7 Key Financial Planning Steps on Divorce or get in touch with a TPO Adviser.

The Financial Conduct Authority does not regulate cash flow modelling. 

The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction. The information is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.

This information is correct as at 18/02/2025