Over the years, several surveys have shown that women have missed out on their husband’s pension on divorce. It’s less common these days, but it can still happen. Find out how to make sure this doesn’t happen to you.
Don’t miss out on the pension on divorce
If you’re getting divorced, it’s a good idea to work out what you and your husband or civil partner’s pensions are worth. This should include any workplace pensions, private pensions and what’s called the ‘protected pension’ relating to state pensions. This assumes that you’re getting divorced or are dissolving your civil partnership on or after April 6th 2016.
SAVVY TIP: The protected pension is the part of the state pension that someone built up before April 6th 2016, that’s above the full new state pension amount. This amount was £155.65 in 2016. People (mainly men) who were employed and who built up an additional state pension, may have built up a higher state pension than the maximum new state pension amount. The date that the calculation of how much state pension was built up is April 6th 2016. Any state pension built up after that date can’t be divided.
Find a divorce lawyer who understands pensions
Your divorce lawyer doesn’t have to be a technical pensions expert as you can buy in expertise if you need it. However, he or she should have a thorough understanding of the options for splitting the pension and be aware of some of the potential pitfalls. Nigel Shepherd of Mills and Reeve recommends asking the following questions:
1. What are the three options for dividing the pension at divorce? The solicitor should be able to explain the options, and their pros and cons, clearly.
2. What type of pensions are there and how do they vary in relation to divorce? Some are easier to value than others, some are easier to divide than others.
3. How do you make sure that the valuation of a final salary or salary-related pension is fair?
4. How can SIPPs be split? SIPPs are self invested personal pensions and they can contain a wide variety of investments, sometimes including commercial property.
SAVVY TIP: I’ve put together a short video explaining the basics of how the pension can be divided at divorce. You can view the pensions and divorce video on SavvyWoman’s Youtube channel. I’ve also written an article called How the pension can be divided on divorce.
Problems with pensions in divorce
Pensions can be difficult to value accurately. If you and/or your husband or civil partner have built up a pension savings pot and don’t have a final salary pension, valuing it can be straightforward. But if it’s a final salary or average salary scheme, it can be trickier.
- The pension scheme may be in deficit. This means that there’s not enough in the pension schemes to pay all the pensions of members who belong to the pension on an ongoing basis. If that’s the case, the pension transfer value may be reduced as a result.
- Splitting the pension when it’s already being paid can be complex. If, for example, you are a younger wife (say, aged 45) and your husband is older and has already retired, your husband’s pension payment would fall as soon as the pension had been shared, says Nigel Shepherd. “Even though you, as the wife wouldn’t receive any pension income as a result of the divorce until you were 55 at the earliest, the husband would lose part of his income immediately.”
- The timing can be crucial. If, for example, you have a policewoman who has been a member of her pension scheme for 29 years, the value could be rather different than if it was to be valued a year later, after 30 years’ service. That’s because police could get a maximum pension after 30 years’ service.
SAVVY TIP: This only applies to police who joined before 2006, when scheme rules were changed and a maximum pension is payable after 35 years. You can find out more about pensions and divorce in my article called why dividing the pension can be complicated.
Resolution has a section about pensions and divorce.
Mills and Reeve also has a divorce website, called divorce.co.uk, which includes useful information on pensions and divorce.
I’ve written a book about divorce and finance which includes a chapter on pensions and divorce. You can find out more about Divorce – how to help yourself and your finances on the Amazon website.
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