Glossary · UK
What is Pension Offsetting (Divorce)?
A way of dealing with pensions on divorce where one spouse keeps their pension and the other keeps a larger share of other assets (e.g. the family home) instead.
Full Definition
Pension offsetting is one of three main ways UK courts deal with pensions when a marriage or civil partnership ends (the others being pension sharing orders and pension attachment orders). Instead of splitting the pension itself, the spouse with the larger pension keeps it in full, and the other spouse receives a larger share of the other matrimonial assets -- most commonly the family home -- to balance things out. Offsetting avoids the complexity and ongoing administrative link of a pension sharing order, and lets one party keep housing security immediately rather than waiting for retirement. Its main drawback is valuation: comparing the present-day value of illiquid assets like a house against the long-term, tax-advantaged value of a pension (especially a defined benefit pension) is not straightforward, and offsetting can undervalue the pension if done using a simple cash equivalent transfer value without actuarial advice.