Protecting Your Pension and Retirement Savings in Divorce | LegalDocuments.co.uk

Overview

When a marriage or civil partnership ends in England and Wales, pensions are treated as part of the matrimonial pot. That includes workplace pensions, personal pensions, SIPPs, and in most cases the additional parts of the State Pension, although the new State Pension itself cannot generally be shared between spouses.

Both defined benefit schemes (sometimes called final salary) and defined contribution pots are in scope, and so are pensions already in payment. The starting point for most settlements is the Cash Equivalent Value, or CEV, which is the figure a scheme provides to represent the transfer value of the benefits.

For defined contribution pots this tends to reflect the real market value reasonably well. For defined benefit pensions, particularly public sector schemes like the NHS, Teachers' or Armed Forces schemes, the CEV can significantly understate the true worth of a guaranteed, inflation-linked income for life.

That is one reason why a pension actuary is often instructed in cases involving substantial or complex pension rights. The court's overarching duty under the Matrimonial Causes Act 1973 is to reach a fair outcome, taking into account factors such as the length of the marriage, the ages and earning capacities of both parties, their future needs, and the contributions each has made.

Key steps

1. Gather full details of every pension on both sides. Before any meaningful negotiation can happen, both of you need to disclose every pension arrangement you hold. Request an up-to-date CEV from each scheme, along with statements showing current values, accrual rates for defined benefit schemes, and any death or survivor benefits. Financial disclosure is usually done on Form E, which requires this information to be set out in full.
2. Work out what the pensions are actually worth in retirement terms. A CEV figure on paper can be misleading. A £300,000 CEV from a defined contribution pot is not the same thing as a £300,000 CEV from a final salary scheme paying a guaranteed, index-linked pension for life. For anything beyond modest pots, consider instructing a Pensions on Divorce Expert (PODE) to produce a report comparing the schemes on a like-for-like basis, so decisions are based on real retirement income rather than surface figures.
3. Choose the mechanism that fits your circumstances. The three main routes are pension sharing (a clean break where a percentage is transferred to the other spouse), pension offsetting (keeping your pension and giving up other assets of equivalent value, such as equity in the house), and pension attachment or earmarking (payments are redirected when the pension comes into payment, though this is now used less often because it does not give a clean break).
4. Build the agreement into a financial remedy order. Any pension sharing or attachment arrangement only has legal effect once it is contained in a court order, even where you have reached a fully agreed settlement through mediation or solicitor negotiation. A consent order is drafted, approved by the court, and then sent to the pension scheme along with the relevant annex. The scheme then has four months to implement the share.
5. Review your wider retirement plan once the dust settles. A divorce rewrites your financial life. Update nominated beneficiaries on any remaining pensions and life policies, refresh your will, and take regulated financial advice on whether your projected retirement income still matches the lifestyle you want. If you received a pension credit, make sure it is invested appropriately for your age and risk tolerance rather than left to drift.

Common questions