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Methods for pensions under divorce

Offsetting – i.e. you keep the house, I’ll keep the pension.

This is only really an option when the solicitors are thrashing it out if a couple are asset rich for obvious reasons i.e. you cannot live in a pension!

Earmarking – used prior to the 15th December 2000. Part of the pension is ring-fenced for the spouse but it is not technically their pension. Downsides to this were:

  1. Spouse could only start taking benefits when main spouse also chose to start taking benefits.
  2. On remarriage, earmarking orders conclude.
  3. On death of the policy holder, earmarking orders conclude.

Nobody does this anymore.

Due to these restrictions and the fact that you were still relying on your ex to stay alive, the Government introduced a much fairer pension ‘Sharing’ facility.

Sharing – used on or after 15th Dec 2000. Pension pots are divided and then are held in each individual’s name. No relying on the ex anymore!

How this process works for the recipient of a pension credit following a Pension Sharing Order from the courts;

  1. The pension sharing order - once stamped and approved by the court – will need to be sent to the recipient’s UK pension scheme.
  2. The provider will then need to be advised as to where (which provider) the recipient wishes to have the funds transferred to.
  3. Once the funds are received by the provider, these will then be in the recipient’s sole name
  4. The recipient can then register for FP2016 (if they so choose) that will give the recipient a personal Lifetime Allowance of £1.25 million, providing the recipient has made no contributions to any pension on or after 6th April 2016 and providing this is done before the recipient crystallises anything.
  5. The recipient can access funds via the full range of income drawdown options from age 55 if transferred to a pension offering these options.

The above guidance assumes that the receiving pension is not in payment and that it’s a DC arrangement.

DB Schemes (specifically) and Divorce Default Options

When the pensions and divorce rules originally came in 1st July 1996 (under the Pensions Act of 1995), DB schemes had to pick default options as to how they would deal with such cases.

Option 1 – Simply put the ex-spouse in the scheme as though they had been an employee (i.e. so the ex-spouse will enjoy a DB scheme pension); or

Option 2 – Issue a cheque (pension credit) in lieu of the % agreed of the CETV and pay that to another pension provider, usually into a new Personal Pension Plan.

FCA permissions when dealing with DB pension & Divorce Cases

Whether an adviser can advise on the issue of Pension Credits deriving from an occupational pension transfer depends on what the client has actually been offered by the scheme and the default method the scheme adopted under the Divorce legislation in Dec 2000.

Where the occupational scheme is NOT offering a deferred benefit within the scheme - only a Transfer Value;

  • Pension Transfer Specialist status not required.
  • As there is no deferred benefit to measure against, the FCA do not class this as an actual transfer. It is exactly like the situation where an individual leaves a scheme with less than 2 years’ service. The scheme may offer a Transfer Value (in lieu of the usual return of contributions). Again, because there is no actual deferred benefit, it is just a matter of advising on Section 32 v Personal Pension Plan/Stakeholder Plan.

Where deferred benefits in the scheme are being offered;

  • This is truly defined as an occupational scheme transfer and would require an adviser to have Pension Transfer Specialist status (Cambridge Pensions hold this qualification).
  • The full transfer process must be followed including a Transfer Value Analysis Report (TVAS) if the funds are in a Salary Related Scheme.


While we keep information on the website as up to date and as accurate as possible, the information on this website does not form part of our advice process. Cambridge Pensions Ltd cannot accept any liability for any decisions made by a client or member of the general public based on any information contained on this website. The value of your investments can go down as well as up and you may get back less than has been paid in.

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