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Understanding a Pension Sharing Order

Richard Beardsworth Pension Expert

By Richard Beardsworth.

Independent Financial Advisor

More Reading on Pensions...

A pension sharing order is one of the unfortunate financial implications involved in a divorce.

As part of proceedings and in order to ensure financial parity, a court can decide to place such an order on an individual whereby their former spouse becomes entitled to a certain percentage of any benefits incurred from a pension scheme. Should this be the case, the beneficiary can receive up to 100% of a pension and associated benefits, with a statutory reduction in the policy holders relevant benefits.

The benefits conferred on the recipient are held independently of the original scheme to ensure fairness and the entire process is managed outside the control of the pension holder. The original court order is submitted directly to the employer or company who runs the pension scheme and they are compelled to act according to the instruction contained therein.

There are no hard and fast guidelines covering a pension sharing order. Decisions are often made in conjunction with overall financial divisions and the percentage dictated applies to everything from the annual pension benefit to any lump sums payable.

The Implications of a Pension Sharing Order

A pension sharing order comes into effect immediately, although neither party may necessarily be of pensionable age at the time. If this is the case, the pension is automatically earmarked for the beneficiary and comes into effect as soon as they reached retirement. Beneficiaries can usually choose to either take their own lump sum, again decided based on a percentage of the entire pension, or receive it in the same way as a standard pension through monthly payments. Some percentages are so small that they are considered negligible. This gives the pension company the right to settle the entire pension through a full lump payment.

A court order does not limit what the original holder can do with their pension. They remain free to transfer their assets among different pension companies depending on their own will or financial advice. However, the order travels with the pension itself and continues to apply at the same rate regardless of where the funds are held.

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Dealing with a Pension Sharing Order

A pension holder can effectively do little once an order has been made on their pension other than following prescribed court procedures. As mentioned, such an order remains for the life of the pension but the holder is free to move it to another registered provider in order to possibly extract more value from the pension itself, offsetting some of the liability. It is also important to bear in mind that a pension can only be subject to one order at any time by law, meaning that a pension that already has an order attached cannot be diminished further.

As with all financial implications of a divorce or separation, a person is within their rights to defend their assets to the extent of the law. Any orders are created with the intention of being as fair as possible and while they are an almost inevitable occurrence, the holder can defend themselves to ensure that they retain as much of the pension's value as possible. They may also choose to increase their contributions based on projections. While some of the amount will be lost in line with the order, it can serve to bring the pension up to a more respectable level, again offsetting the impact of a pension sharing order.

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