A recent study published by Cardiff University and the Nuffield Foundation has revealed that the number of divorce settlements involving pension orders is surprisingly low and well below Government predictions.
There are currently three ways to divide pensions between spouses on divorce:
- Pension sharing –one spouse is awarded a percentage share of the other spouse’s pension(s).
- Pensions attachment (sometimes called ‘earmarking’) –one spouse receives an amount of the other spouse’s net pension income or lump sum (or both) when it starts being paid to them.
- Pensions offsetting – the value of any pensions is offset against other assets. So one spouse may keep a greater share of the family home in return for the other spouse keeping his or her pension income.
The research published in March 2014 studied 369 divorce court files from all parts of England & Wales.
The Key Findings were:
- In 20% of cases neither party disclosed any pension other than a basic state pension.
- In 66% of cases one or both parties disclosed a pension (other than a state pension) but no pension order was made.
- In 14% of cases there were one or more pension orders.
In all the cases where a pension order was made it was a pension sharing order and all but two were in favour of the wife.
The research also revealed that pension orders were significantly more likely to be made when both parties were legally represented. This perhaps reveals that those parties acting in person are often unaware of the court’s power to make a pension order.
It is true that pension orders can add to the time, cost and legal fees as there has to be disclosure of the Cash Equivalent value of the pension fund(s) and sometimes it is necessary to obtain a pension expert report. Sometimes, however, pensions can be valuable assets and it is important to consider the long term benefits of pension funds and appreciate their real value which good legal advice can assist with.
Pensions are very complex in the UK with a variety of state, occupational and private pension schemes on offer and it is therefore important to have good legal advice on how to deal fairly with pensions on divorce.
If you would like to read the full report go to orca.cf.ac.uk.