Why Pensions Are Important

Posted By: on 20th June 2021 | Category: Blog

In many divorces, pensions are often the most valuable asset that exists after the family home. For this reason it is extremely important to ensure that any proposed financial settlement reflects their significance.

Whilst there a number of ways that pensions can be distributed as a part of a divorce settlement, the 2 most common approaches are known as pension sharing and pension offsetting. It is not uncommon for one spouse to have a substantially larger pension than the other. In that scenario a pension sharing order can be made which has the effect of re-distributing the pensions between the spouses. Another common solution is offsetting, this is where one spouse retains their larger pension pot and the other spouse retains a greater share of the liquid capital assets. However, offsetting is by no means straight forward as there is no specific or fixed formula for calculating the value of an offset.

Matters are made more complex by the fact that different pension schemes calculate their value in different ways and this means that the divorce valuation of a pension (often known as a transfer valuation) is not necessarily a reliable indicator of the true value of the pension. This is particularly important when considering final salary (defined benefit) pension schemes.

In summary, pensions are complex assets and it is absolutely essential to ensure that they are properly considered within the divorce and financial settlement process. In some matters depending on the size of the pensions it may be necessary to obtain a pensions report from an appropriate pension’s expert so as to ensure a fair outcome is achieved for all.

I offer a free initial 30 minute interview with all new clients to consider their options and identify the best way forwards for them and their family.

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