What is a pension earmarking order in divorce?

Full answer

A pension earmarking order (called a 'pension attachment order' in Scotland) is a court order made in divorce or dissolution of civil partnership proceedings that requires some of the pension member's pension benefits to be paid to the former spouse or civil partner when those benefits eventually come into payment. Legal basis: in England and Wales, earmarking orders are made under the Matrimonial Causes Act 1973 (as amended by the Pensions Act 1995). They apply to occupational and personal pensions but not to the State Pension. What can be earmarked: (a) pension income (a percentage of the annuity or drawdown income paid to the former spouse when the member retires); (b) the pension commencement lump sum (tax-free cash -- though this is rarely earmarked alone); (c) death-in-service lump sum (if the member dies before retirement). How it works in practice: the court specifies a percentage or fixed amount of each type of benefit. When the pension becomes payable (on the member's retirement), the pension provider pays the specified share directly to the former spouse. If only income is earmarked, the former spouse receives a monthly or annual payment for as long as the member receives it. Major disadvantages of earmarking (why it is rarely used in England and Wales): 1. No clean break: the former spouse remains financially linked to the member indefinitely. The relationship with the ex-spouse's financial decisions continues after divorce. 2. Member controls retirement: the member decides when to retire, what product to use (annuity vs drawdown), and what choices to make on retirement (e.g. joint life annuity or single life). The former spouse has no say but is directly affected. 3. Remarriage risk: in some circumstances, if the former spouse remarries, the earmarking order lapses and they receive nothing. 4. Death of member: if the member dies before retiring, the former spouse may receive a death benefit if earmarked, but the income earmarking is lost if the member dies post-retirement depending on the pension terms. 5. Death of former spouse: if the former spouse dies first, the earmarked income dies with them -- nothing passes to their estate or children. 6. No independent pension: the former spouse has no pension asset in their own right -- just an entitlement contingent on someone else's pension. Why pension sharing orders are preferred (in England and Wales since 2000): a pension sharing order splits the pension immediately and cleanly. The former spouse receives a 'pension credit' as a separate pension in their own name. There is no ongoing link to the ex-spouse's decisions. See the separate answer on pension sharing orders. Scotland: earmarking (attachment) orders are more commonly used in Scotland than in England and Wales, partly for historical reasons. The Scottish approach to pension sharing also differs. Practical advice: if you are in divorce proceedings, always instruct an independent financial adviser (IFA) with pension expertise, and where the pension is large or complex (especially defined benefit schemes like the NHS or Teacher's Pension), consider jointly instructing a Pension on Divorce Expert (PODE).

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