How does a pension sharing order work in a UK divorce?

Full answer

Pensions are often the largest single asset in a marriage, particularly for public-sector workers with defined-benefit (DB) pensions. A pension sharing order (PSO) is the most common way courts deal with pensions in financial settlement proceedings on divorce or dissolution of a civil partnership. How it works: 1. During financial remedy proceedings, the parties (and the court) obtain a Cash Equivalent Transfer Value (CETV) from each pension provider. The CETV is a notional transfer value -- for a DB scheme it is calculated by the scheme actuary and represents what the pension is 'worth' as a lump sum. For a defined-contribution (DC) scheme it is simply the fund value. 2. The court (or the parties in a consent order) specifies the percentage of the pension to be shared: e.g. '40% pension sharing order against the member's [Name NHS Pension Scheme] pension.' 3. After the divorce order is made absolute (final divorce order / final dissolution order) and a 'pension sharing annex' is served on the pension provider, the provider has up to 4 months to implement the order. 4. The provider transfers the specified percentage of the CETV to the recipient as a 'pension credit.' The member's pension is correspondingly reduced (a 'pension debit'). 5. The recipient becomes an independent pension holder. For a DB scheme, they can usually choose to become a 'deferred member' of the ex-spouse's scheme (receiving a proportion of the same defined benefit) if eligible, or transfer the pension credit to their own pension arrangement. Key features: - The pension credit is completely separate from the ex-spouse after sharing -- there is no ongoing link. - The tax-free cash entitlement is shared proportionately. - Annual allowance implications: the pension credit counts towards the recipient's annual allowance in some circumstances -- take advice if either party has a large pension. - DB scheme CEFVs can be complex and sometimes disputed. An independent actuary's review is sometimes appropriate. Pension earmarking (attachment) orders also exist but are rarely used now in England and Wales -- see the separate answer. Both parties should take independent legal advice and ideally have a pension expert (pension actuary or pension on divorce expert, PODE) involved.

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