For divorce proceedings started since 1st December 2000, the court has been able to award a pension share as part of the divorce settlement.
It is as a result of the Welfare Reform and Pensions Act 1999 that couples can now request that pension providers split - or ‘share’ - the fund so that both spouses have a separate, independent pension.
Hannah Foxley, Chartered financial planner at The Women’s Wealth Expert, explains that basic state pension, state graduated pension and survivors’ pensions from a previous marriage cannot be shared. Other state pension rights can be, although this must take place before the decree absolute is granted.
Sharing often involves the non-member spouse to transfer their rights to a different scheme, though some, especially certain public sector defined benefit schemes, will allow both parties to remain members.
Pension sharing provides a clean break at the time of the divorce, unlike ‘earmarking’ where the partners need to keep communicating about pension.
A pension sharing order cannot be attached to a pension fund where there is already an earmarking order, so the spouse of a second marriage may be disadvantaged.
Ultimately though the decision of whether to share or not can be taken out of the couple’s hands, as the court can order them to pension share.
Scottish Widows’ Mr Naismith says if the couple can come to an agreement on the treatment of pension the court should accept that. He adds once the court has agreed the settlement there is no subsequent comeback so the couple will not be forced to share their pension in the future.
The court will award the pensions sharing order as a percentage of the CETV of the pensions or the actuarial calculation that has been given, Ms Foxley says.
The pension trustees must then deal with the payment within four months of the court order taking effect or if later, the date that they received the relevant documents to proceed with the order.
This period is known as the implementation period.
Ms Foxley warns failure to act within the implementation period will result in a fine from the pensions regulator.