deferred pension sharing order

Do you need a deferred pension sharing order? It you’re setting up a shared pension order for your divorce but one spouse isn’t eligible to access their pension yet, a deferred order could help save you money and time.

When it comes to divorce, the division of matrimonial assets in the context of a financial settlement will involve a review and consideration of all assets held by you and your spouse. This includes capital assets, such as the house, savings, investments and perhaps a family business, but also pensions.

Pensions that have been accrued during the marriage will be deemed as matrimonial assets and are therefore capable of being shared. Equally, the “needs” of you and your spouse are taken into account when considering whether or a how a pension should be shared.

However, the point at which you or your spouse can access the pension in the future will vary from scheme to scheme. Let’s look at a situation where this might cause some difficulty.

An example scenario

The husband is 65 years old and the wife is 57. The husband was able to access his pension at 60, and it is therefore in payment. It’s agreed that his pension will need to be shared in order to meet the wife’s retirement needs. However, the wife, at age 57, cannot access her share of the pension for another three years.

There would be little point in implementing a pension sharing order immediately because the husband’s pension income would decrease. A proportion of his pension would be carved off and put in his wife’s name by virtue of the pension share, but the wife would not actually benefit from that share because she wouldn’t be able to access or draw down on her pension share for another three years without suffering a penalty.

It is therefore possible to defer the pension sharing order until such time that the receiving spouse can access the pension.

The benefits of a deferred pension sharing order

The benefit is that the spouse who holds the pension does not suffer an immediate reduction in income, which the receiving spouse then cannot use.

In the interim period, it is usual for the spouse who holds the pension in payment to pay maintenance in order to “fill the gap” between the time of settlement and the time that the receiving spouse can access their share of the pension.

In the situation above, this means the wife’s immediate needs would be met by the maintenance order, payable by the husband who retains his pension, and then her future needs would be met by virtue of the pension share which is implemented three years later, when she reaches age 60 and can access the pension in her own right.

For more information on how shared pension orders work, you can see our previous article here.

How we can help

We are able to assist and advise you in putting the necessary arrangements in place to ensure that it is possible for the rest of your settlement and divorce to be dealt with now, even though the pension share will not be implemented until a future date.

We can help you agree how capital and pension assets are divided now, and draft that into a binding court order. Your divorce and overall settlement shouldn’t need to be delayed just because the pension is being physically divided at a future date. Pension sharing should be considered at the earliest opportunity, so it is important to take legal advice.