A Free Guide to Help You Understand Pension Sharing Order

Finalising a divorce settlement is hard enough, especially when you factor in selling the house and sorting the finances. Statistically, divorces are in the top three most stressful experiences you will have in life, alongside moving house and death. Having a pension order in place is just one less thing to worry about when it comes to talking money.

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What is a Pension Sharing Order?

You may be wondering what a pension order is exactly and how it could work for you. In basic terms, a pension sharing order is a formal agreement of which your pensions are divided in a fair manner, to ensure both parties are looked after going forward. A brief example of this is if one party has given up their career to raise a family or stay at home, and therefore has either a small or no pension, from a previous job. A pension sharing order will then allow this person to have financial security in the future.

How a Pension Sharing Order Works

In December 2000, pension orders were legally introduced as a way of splitting up marital assets and can only be finalised through the court. Pension sharing orders typically work in three ways:

 

1. Pension Sharing

The standard most common way. The pensions are calculated and worked out into fair percentages through the court, to determine the suitable finances for each party. The receiving party can either then become a member of the original pension scheme or it can be transferred to a new pension provider.

It can also be added to a previous pension scheme if the receiving party already had one set up in place. This can be discussed depending on personal preference.

 

2. Earmarking

This type of method means that the pension doesn’t kick in for the receiving party until the active party starts to receive theirs. The pension itself is earmarked aside for a set period of time for a specific date.

 

3. Offsetting

If the party in ownership of the pension decides they would rather keep their full pension, then this is an option available. This method means the pension is offset against other assets of similar or the same value. This could be giving the receiving party the current marital property, or a lump sum cash payment if available.

It should be noted that a pension sharing order isn’t an automatic 50/50 split. The parties themselves can come to an agreement of percentages, but if this isn’t plain sailing (which sometimes it isn’t) then the court will calculate fair finalisation. This will be done in a way to consider both the current assets of each party, and how they will cope financially moving forward.

It should also be noted that for whatever reason necessary, a pension sharing order can also be reversed if need be. This will again, go through the courts, and will come at an additional charge.

For more information on the legal side of things, it’s definitely worth checking out the official regulations for pension sharing orders, so you are aware of what you’re entitled to or what you’re giving out.

Generally speaking, the majority of pensions are included when it comes to a sharing order. This ranges from private, occupational, personal and as well as both registered and non-registered.

State pensions come under different regulations and can only be shared in certain circumstances. This also depends on what stage the divorce proceedings have occurred and what entitlements are available.

Applying for a Pension Sharing Order

Hopefully, your understanding of a pension sharing order is slightly clearer, and you’re probably wondering what the next steps are in terms of application and process.

As previously stated, you do need to apply to the court for a pension sharing order, as this is a legal requirement. Your pension provider won’t be able to amend or release your pension in such a way without guidance from a court order.

This may sound slightly daunting, but it’s really not. Most parties will be able to come to an agreement via their own solicitors/financial advisors and from there a court order will be applied for and completed in a quick manner. If you had visions of having to take the stand, then do not panic. All this will be sorted behind the scenes.

If for whatever reason you can’t come to a conclusion between yourself and your party, then the court will simply take the matter into their own hands and work out the percentage of what you will both receive. This will be done on a calculation of pensions assets and their value.

The valuation method is known as a CETV (Cash equivalent transfer value). This is the lump sum amount of what you would receive if withdrawing from your pension. Once a pension sharing order is completed and received, the administrator trustees of the order have 21 days to issue a notice of implementation and any charges that need to be paid.

This order must then be implemented within four months. This only applies to England and Wales as due to Scottish legislation; they must receive all their information within two months from the divorce proceedings for it to be valid. This implementation process can be extended in certain and approved circumstances. Once it is all finalised, both parties must be notified by the trustee within 21 days.

When considering a pension sharing order, it is always best to consult with a financial advisor to guide you on the most suitable options available. Don’t complicate your divorce any more than you need to, and ensure you have the right financial plan before applying for a pension sharing order.

Divorced could talking about theirPension Sharing Order

What is the Pension Sharing Order Process?

You may not even know where to start when it comes to a divorce, let alone a pension sharing order. It can be a highly stressful time with your financial assets being pulled in every direction possible.

However, a pension sharing order doesn’t have to complicate things.

The process of a pension sharing order can be quite simple with the right financial advice. The basis of it is purely finding out the worth and value of your or your party’s pension and then devising a fair amount for each of you to be comfortable with moving forward with your lives.

If you aren’t able to come to this on your own terms, the court will calculate a fair amount for you, so you know that your assets will always be analysed professionally. But as stated previously, is to seek a financial advisor to help make your concerns a reality.

They can help ensure you understand how your assets are going to be calculated and what is a fair and reasonable amount to settle with.

When you’re looking into your pension value, you need to consider both your private and state pension, if you have one. State pensions are handled slightly different and aren’t generally split in a pension sharing order, unless under specific and exceptional circumstances.

This is also where you may need to seek further advice from a financial advisor as if your pension is on a final salary pension scheme, you will need to have a professional evaluation. If you have a personal pension, it’s just as easy as looking at your latest annual statement.

This will help you understand what your pension is worth and give you a transfer value figure, which is what the court will use when they need to assess your case.

A typical workplace pension can usually be coined under a defined contribution. This is where you pay a set amount into your pension each month. Again, this is as simple as looking at your annual statement to give you the transfer value of your pension.

Once you have all the information you need, the next step is applying for your pension sharing order. You need this to be done through a court order as part of your divorce. During this process it is best to consult with your financial advisor to go over the finer details.

The application itself will be submitted by a trustee, who will then report back on its progress and implementation time. The court will then review the terms and calculate any percentages if need be. A court order process is up to 4 months in England and Wales and 2 months in Scotland.

Once the decision has been finalised, the trustee has 21 days to report back, including a timeframe of 7 days for an appeal or reversal. It should be noted that charges will be applied from your trustees and a cost should be discussed between both parties before the go-ahead.

Once the application has been completed, you then have a massive chunk of financial weight lifted off your shoulders.

Is there a Time Limit on Pension Sharing Orders?

During the divorce process, there are probably 101 aspects to sort out when it comes to splitting the financial assets. Yes, it can be daunting, but it certainly doesn’t have to be stressful. You may already be aware of a pension sharing order but are concerned about the time limits.

With so much else going on, your life is probably being turned upside down, let alone thinking about the future of your pension and what you’re entitled to. To put your mind at ease, the answer is no, there is no time limit on pension sharing orders.

You’ll be relieved to know that you don’t have to jump in with a pension discussion and you can even apply after your divorce has been finalised. A pension sharing order and your divorce itself can actually be separated into two separate categories, so there is no need to panic at this stage.

The only thing that needs to be in place is evidence to show that your divorce proceedings have started and that there will be an end goal if there hasn’t already been one. Even if in unfortunate circumstances one of the party members passes away, the pension sharing order can still be processed and implemented. Again, proof that the divorce proceedings were occurring in the first place needs to be documented as proof.

The only time constraints that will be present are those of the court order and trustees in charge of the pension sharing order. This actually differs in England and Wales in comparison to Scotland due to legislation differences. In England and Wales, the pension sharing order must be implemented within four months whereas in Scotland this is two.

After the documents have all been received and finalised, the trustees must inform both parties within 21 days. This also needs to be within 7 days of the expiry limit set in place, as this gives a 7-day appeal process, or application to have the order reversed. For future reference, if the pensions sharing order needs to be reversed further down the line, it can be done via another court order but will be charged accordingly.

Before considering a pension sharing order, it is always advised to get in touch with a financial advisor to go over any time limits, firstly just for your peace of mind but also to inquire about the timeframe of your proceedings. Some divorces are lengthier than others, and with the right financial advice to hand, you will be able to proceed as smoothly as possible.

Even though there are no set time limits for completing your pension sharing order, it’s definitely something worth ticking off the list sooner rather than later. Even just to get your assets in order for one less thing to stress about. The closer you get to finalising your divorce the one step closer you are to a new chapter in your life.

What to do Next

If you’re currently going through a divorce or about to start proceedings, you are probably aware of the financial battles ahead. Your first port of call would probably be to call a solicitor, but have you considered consulting with someone about your finances personally?

By speaking to a financial advisor, you could really learn a great deal about what to do with your assets, how to manage your pension and what to do in the case of a pension sharing order.

A financial advisor will be able to assist and value your current pension, all whilst determining the best figures to finalise during your divorce. Prior to your court order, you will want to have all the knowledge possible before any negotiations are underway. You should be aware of what you’re entitled to and how it will proceed going forward.

A financial advisor can assist you with valuing your pension, whether this is a personal, non-registered, state or occupational etc. This will help determine whether your pension is the final salary or defined contribution etc. It will then be calculated on what percentage you and your party are both entitled to. It’s also worth checking the charge rates of information taken from your pension company.

Some information can be provided for free, but others may have charges. Your financial advisor can also assist in matters like this. Once you have the relevant information, it should be discussed with the opposing party how you will be splitting the bill for these charges prior to them being made. Your application will then be processed via a trustee, who will report back the outcome 21 days after they are informed.

An implementation can take between 2 and 4 months. During this time, the court will assess your order, especially if you were unable to come to a finalised agreement. They will base their calculations on both parties’ current circumstances and previous marital circumstances.

A pension sharing order is not officially made until the decree nisi is granted from the courts. This is to provide evidence that the divorce proceedings are underway or completed. After the decree is granted, no variation in the financial settlement can be varied or changed. This is due to the basis of it being a legal document.

The pension sharing order scheme began in December 2000 and is now a legal formal document containing the agreed financial settlement from your divorce. For whatever reason you wish to appeal or reverse your sharing order, always consult with your financial advisor and solicitor before doing so.

It is always best to seek financial advice when considering a pension sharing order.

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