Pension offset


                                                                                                    This is the oldest and still the most commonly used method of dealing

                                                                                                    with pension benefits. The value of the pension assets is taken into

                                                                                                    account when valuing the couple’s assets. However, each keep their

                                                                                                    own pension rights, with the value of the pension rights being offset

                                                                                                    against other assets, such as the couple’s home. The following is a

                                                                                                    simple example to show how this works.  


                                                                                                    The ‘husband’ has pension rights valued at £400,000. The marital

                                                                                                    home is worth £500,000 and the couple have other assets of



                                                                                                    The divorce settlement may provide for the ‘husband’ to keep his                                                                                                                                                            pension rights while all or part of the other assets are passed to his



                                                                                                    This is likely to remain the preferred choice for the majority of couples,

                                                                                                    particularly as it is perceived as easy and understandable.  




                                                                                                    This is where all or part of the pension benefits of one of the couple

                                                                                                    are ordered to be paid to the other, once they come into payment.  


                                                                                                    Earmarking has not proved at all satisfactory in practice as it does not

                                                                                                    achieve a clean break. It does not enable the ex-spouse/partner to

                                                                                                    receive retirement income until the spouse/partner with the pension

                                                                                                    pot retires as the ex husband/partner still with the benefits still retains

                                                                                                    all control over the arrangement and can exercise that power of

                                                                                                    control to deprive the ex-spouse of benefits by controlling the

                                                                                                    investments or deliberately defer retirement until their 75th birthday.


                                                                                                    An even greater drawback is that, if the order is for the regular

                                                                                                    payment of a pension, those payments will stop when the ex

                                                                                                    spouse/partner with the pension pot dies. The party who receives the                      

                                                                                                    earmarked pension will also lose it on remarriage. Because of this,

                                                                                                    earmarking orders are relatively rare and Judges will rarely listen to an

                                                                                                    earmarking request or proposition.  

                                                                                                    Pension sharing  


                                                                                                    This involves splitting the pension at the time of divorce/dissolution to

                                                                                                    give both parties their own pension pot for the future, so that there is a

                                                                                                    clean break.  


                                                                                                    The ex-spouse/partner’s share can either stay in the existing scheme

                                                                                                    (if this is an option) or be transferred to another pension scheme of

                                                                                                    their choice. This could be a personal pension, stakeholder pension or

                                                                                                    an occupational pension scheme, if the receiving scheme rules allow.

                                                                                                    Alternatively, a lifetime annuity could be purchased if the ex spouse or

                                                                                                    partner is aged 50 or over (55 from 2010).  


                                                                                                    None of the options are mandatory. It is up to the parties and their

                                                                                                    lawyers and, if necessary, the courts to decide on the best method.

                                                                                                    The most important point is the calculation of the value of the pension

                                                                                                    which is very rarely the same as the transfer value as discussed on

                                                                                                    the next page.     .


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