Pension sharing post-freedoms

This article is part of
Guide to pensions and divorce

Pension sharing post-freedoms

Pension freedom has offered new flexibility for financial planners when it comes to advising on pensions and divorce.

In some cases this flexibility has helped with the advice process; in others, it has made it more complicated.

Helpful flexibility

David Trenner, technical director for Intelligent Pensions, comments: "Pension freedoms have proved helpful for pension sharing in divorce when liquidity is an issue, and the client is over 55.

"Many households have limited liquid assets and the two major assets are the family home and one or more pension funds.

"If the wife has custody of the children then it makes sense for her to keep the house, but the husband still has to live somewhere."

He adds that taking money from his pension fund could be a solution, although the recently announced reduction of the money purchase annual allowance from £10,000 to £4,000 could be a problem, as the first article in this guide has covered.

Pension freedoms have also made the division of defined contribution (DC) benefits on divorce much more simple, according to Mike Morrison, head of platform technical for AJ Bell.

He says: "Post-age 55, it is now easy to share a defined contribution pension on a pound-for-pound basis, therefore facilitating a clean break. 

"Pre-age 55, a pension sharing order will need to be used, although the pension freedoms have not changed the advice requirements around this."

Offsetting, earmarking, pensions sharing orders

Until the Pension Act 1995, the only method of splitting pension assets in a divorce was called 'offsetting'.

This means that, on divorce, non-pension assets were traded to compensate for the loss in pension assets by the other spouse.

According to Alistair McQueen, savings and retirement manager at Aviva, this is "traditionally the most common option as it allows a completely clean break between the divorcing couple".

The value of the pension is taken into account when dividing the assets but each individual keeps their own pension rights.

Specialist financial advisers or actuaries are usually needed to provide a specific valuation but generally, a valuation will take into consideration the age of the pension member, their salary, how long they have been in the scheme and the level of contributions made to the scheme.

For example, according to, this would be how to work out average valuations from a private scheme, assuming the pension holder is male, scheme retirement age is 65 and if in service for three years after the pension valuation date. 

Average Private Scheme - In Service
Case ACase BCase CCase D
 Current age (yrs)
 Current earnings
 In scheme (yrs)

If both couples are in similar workplace DC schemes, ascertaining the valuation should be a reasonably straightforward mathematical calculation. 

However, complications arise when defined benefit schemes are involved, with protected rights and guarantees.

As with defined benefit pension transfer requests post-pension freedoms, any advice involving defined benefit pensions by law has to involve a specialist adviser with relevant qualifications if the value is more than £30,000.