Helen and her husband were in the process of divorcing. They came to us for help in dividing their finance and, additionally, Helen wanted to stop working. We established how the pension fund she received during the divorce could help her fund her desired retirement lifestyle.
Pension sharing for divorcing or separating couples - BlueSKY
One of the most contentious issues for divorcing or separating couples is how pensions will be shared.
During this difficult and worrying time, we understand that financial security is of the utmost concern, and neither party will want to be left without the financial stability they need to rebuild their lives.
This is where our Financial Planners can utilise their training and experience to support you, and help you understand how your finances can be shared in a way that meets everyone’s needs.
The questions we will help you answer
What is a pension sharing annex?
Why do we need a pension sharing report?
Why don’t we simply split the pensions equally between us?
Will I be able to retire when I want to?
Why will my spouse get half of my pension when I’m the one who earned it?
What about my financial situation after the divorce?
When it comes to divorce and separation, pensions tend to be one of the most complex areas to deal with. You may be tempted to simply divide a pension equally between you, but in many cases this will provide significantly different pension incomes in retirement.
This is because valuations or cash equivalents (CEs) rarely represent the true cost of the benefits that the pension will pay, so they must be approached with caution, especially where large pension schemes are involved.
Generally, pensions should be shared with the starting premise of providing equal incomes at retirement. This is where the pensions experts at BlueSKY can help. We can gather the required information, analyse it and produce a report detailing how best to share the pensions to produce equal incomes at retirement.
What is a pension sharing annex?
In basic terms, a pension sharing annex allows you to receive a share of your spouse’s pension. It is an instruction to the trustees of a pension scheme to pass a ‘pension credit’ from the scheme member to the spouse.
Normally, your lawyer will obtain and complete a pension sharing annex form for you, but before it can become enforceable, it must be sealed by the courts and the pension trustees cannot implement the annex until a sealed Decree Absolute is also provided.
Pension sharing annex: the challenge
In our experience, the most complex part of the process is establishing which pension scheme(s) should be shared, and how much should be awarded as a pension credit. Pension schemes can be complicated and the pension valuations (CE or CETV) that you receive may be a poor reflection of the pension benefits that will be provided.
It is often better to share some pension schemes more than others. Some pension schemes allow (or insist on) ‘internal’ or ‘shadow’ membership for the ex-spouse. This means that new, but completely separate membership of the existing pension scheme is created for the ex-spouse. Other schemes insist on an external transfer to an alternative pension arrangement.
Sharing of the State Pension can also be a complicated area. This is not a reason to neglect State Pension benefits, but it’s best to seek advice.
As pensions experts and specialists in divorce matters, we can ensure that your pension share is obtained in an efficient manner and ends up in the most appropriate pension for your situation. We can also help you plan for the future by rebuilding or making the most of your financial situation.
Pension sharing report
For many years we have been providing solicitors and clients with pension sharing reports. These explain, in plain English, your best options for sharing your pensions, based on the objectives that you are trying to achieve.
Our pensions experts will discuss your situation with you, or your lawyer or mediator to identify and agree on what you want to achieve. If a pension sharing report is needed, we can assist in gathering the necessary information to produce the report on a single or joint basis.
Our reports will generally start by showing how pensions are best shared to produce equal incomes in retirement, although other permutations can be considered, such as retiring at different ages or ‘offsetting’ where cash or property equity is exchanged for a pension share or vice versa.
Pension sharing reports can be generated on a single or joint basis. It’s normally the case that a joint instruction will be most effective as we will act impartially in advising the best way to divide the pensions.
After you’ve reached an agreement…
Your divided assets will obviously be worth less than you started with. It can be a rather daunting task to work out what the overall effect will be on your financial affairs after the divorce.
Our Financial Planners can help you make sense of the assets that you are left with and help you plan for the future.