Divorcing couples often overlook their pensions entirely, even though they’re among the most valuable assets they likely have.

Indeed, research published in Money Marketing found that 71% of divorce settlements did not include pensions.

While couples may feel other matters, such as the house or childcare arrangements, are more pressing, leaving pensions out of the settlement can put one party at a significant disadvantage.

So, it’s important for clients to ensure they consider their pensions in the divorce proceedings and to understand the options they have when it comes to splitting them.

Professionals are uniquely placed to assist with this. Solicitors can ensure the pension splitting is legally binding and obtain a pension splitting order. Meanwhile, financial planners can help clients understand their pension-splitting options, obtain relevant pension information, and interpret valuations, including Cash Equivalent Transfer Values (CETVs).

Read on to find out how divorcing clients can split their pensions and how collaboration between financial planners and solicitors can be invaluable throughout the process.

Clients have three main pension-splitting options

There are three main options for splitting pensions in divorce:

  • Pension sharing involves giving one spouse a percentage of the other’s pension benefits through a pension sharing order. The receiving spouse gains a pension entitlement in their own right, either within the existing scheme or through a separate pension arrangement. This gives both parties greater financial independence and control over their retirement savings. However, the implications depend on the pension scheme, and specialist advice may be needed to understand the benefits and costs of a transfer.
  • Pension offsetting occurs when clients choose to balance pension wealth against other assets. For example, one partner might retain a greater share of the family home in exchange for the other keeping their pension. However, differences in taxation and future growth can mean that comparisons are misleading.
  • Pension attachment involves directing the pension scheme to pay a specified portion of one spouse’s pension benefits to the other when those benefits become payable. Unlike pension sharing, this leaves the former spouses financially connected.

There is no universally correct approach. The best option depends on the couple’s circumstances, goals, and future needs, so it’s important to understand the financial consequences before reaching an agreement.

Financial planners can help clients throughout the pension-splitting process

A financial planner can help your clients explore their pension-splitting options, obtain a valuation and arrange the split, and then plan for their financial future once it’s complete.

By modelling various scenarios, a financial planner can show clients how different pension splits might affect their retirement income before they choose which option to pursue. This can help clients compare the possible consequences of their options rather than relying solely on the pension values.

Accurate pension valuations are central to this process. Financial planners can help clients obtain and understand Cash Equivalent Transfer Values (CETVs) from their pension providers and assess how different pension arrangements could affect their retirement plans.

However, a CETV may not reflect the full value of a pension’s benefits, particularly for defined benefit schemes that provide a guaranteed retirement income. In more complex cases, a financial planner can recommend involving a Pensions on Divorce Expert (PODE), who can provide specialist calculations to help inform a fair settlement.

The aim is to give clients and their solicitors the clearest possible picture of the available options, helping them reach agreements that account for their long-term financial needs.

Once the split has been settled, a financial planner can then work with the client to ensure they make best use of their pension to help secure their future.

Early collaboration between professionals can be invaluable for divorcing clients

When it comes to pension splitting, the greatest benefit for clients comes when solicitors and financial planners work together from the outset, rather than bringing in financial advice once the main settlement terms have already been agreed.

Early collaboration allows potential issues to be identified. It also gives the financial planner time to model different outcomes so the client can make an informed decision and advise where specialist advice may be necessary.

The two professions bring complementary expertise. Solicitors understand the legal framework and negotiate the settlement, while financial planners help clients understand how those decisions could affect their financial future. Regular communication and collaboration can help ensure both remain aligned with the client’s objectives.

Get in touch

To find out more about how our sectors can collaborate for the benefit of our mutual clients, get in touch.

Email info@blueskyifas.co.uk or call us on 0118 987 6655.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.