Pension Sharing Orders

A Pension Sharing Order (PSO) is a legal order issued by a court that divides a pension plan’s assets between divorcing or separating spouses or civil partners. It is a way to achieve a fair distribution of pension benefits as part of the financial settlement during a divorce or dissolution of a civil partnership. Pension sharing is one of the methods used to split pension assets, alongside offsetting and earmarking. Here’s an explanation of how Pension Sharing Orders work:

Key Points about Pension Sharing Orders:

  1. Legal Process: A Pension Sharing Order is issued by a court as part of a divorce or dissolution settlement. It specifies how a pension’s value will be divided between the parties involved.
  2. Equalization of Pensions: The purpose of a PSO is to achieve a fair and equal distribution of pension benefits between the divorcing or separating parties. It ensures that each party receives a portion of the pension, allowing them to create their own separate pension funds.
  3. Pension Value Splitting: The PSO specifies a percentage or amount of the pension’s value that will be transferred from the pension holder’s fund to the recipient’s fund. This can be done within the same pension scheme or by transferring funds to a new pension provider.
  4. New Pension Fund: The recipient of the pension sharing order will have their own separate pension fund, which they can manage and make decisions about independently.
  5. Types of Pensions: Pension Sharing Orders can apply to various types of pension plans, including workplace pensions, personal pensions, and additional voluntary contribution (AVC) plans.
  6. Timing: A PSO can be implemented at the time of the divorce or dissolution settlement, or it can be deferred until a later date, such as retirement.
  7. Valuation: Before a PSO is issued, the pension(s) involved need to be valued accurately. This is often done by actuaries or pension experts to determine the value of the pension assets being shared.
  8. Impact on Retirement Benefits: It’s important to note that the pension holder’s benefits will be reduced as a result of the pension sharing order, as a portion of their pension assets are transferred to the recipient.
  9. Protection and Maintenance Orders: A PSO is separate from any child or spousal maintenance orders and does not affect other aspects of the divorce settlement.
  10. Tax Considerations: There may be tax implications related to pension sharing, such as tax-free lump sum allowances or potential tax charges on transferred pension funds.

Benefits and Considerations:

  • Fairness: PSOs ensure that pension assets are divided fairly, helping to secure the financial well-being of both parties in their retirement years.
  • Independence: The recipient of the pension sharing order gains financial independence and control over their own pension fund.
  • Complexity: Pension sharing orders can be complex and involve legal, financial, and administrative processes. Professional advice from solicitors and financial advisers is recommended.

Pension Sharing Orders are subject to legal and financial regulations that can vary by location. If you’re going through a divorce or dissolution and considering a PSO, it’s crucial to consult with legal and financial professionals who can guide you through the process and help you understand the implications for your specific situation.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested. HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.