The consideration of pensions and their values are a critical element of lots of matrimonial financial settlements and it is important to understand what that might mean for you or your spouse. Here is a glossary of divorce and pension terms which may arise during your case.
Cash Equivalent Valuation
This is often referred to as the “CEV”. For divorce purposes, when ascertaining the value of the pension, we will ask you to obtain a CEV. This is because although the pension is not liquid or ready cash, we assess the value based on what the pension would be worth in cash terms today.
Pension Sharing Order
A Pension Sharing Order is an order from the Court which makes provision for all or some of one spouse’s pension to be transferred to the other. The share is transferred at the time the overall settlement is reached, not upon retirement.
Pension Attachment Order
This is an order from the Court which makes provision for a payment from your pension to be redirected to your ex-spouse at the time the pension is drawn on retirement. Those payments stop when the pension holder dies and this order will prevent a clean break settlement being put in place.
This is the fee charged by the pension scheme administrators to put into effect a pension sharing order or pension attachment order.
This is a regular payment from the Government which most people are able to claim when they reach state pension age. The amount you receive will depend on how many years of National Insurance contributions you have made. If you are short on National Insurance contribution, we can take this into account as part of the settlement.
It is usually possible to take up to 25% of the amount held in your pension pot, tax free on retirement. The remaining pension pot will be subject to tax. Under pension freedom rules, you can take a greater percentage as a lump sum, but there will be tax implications upon which you will need specialist advice.
Defined Benefit Schemes
These are usually workplace pensions. Under this scheme, the benefit the member will eventually receive is fixed at the start, when the member enters into the pension contribution arrangement. A “Final Salary” scheme is an example of a defined benefit scheme where the member’s pension is calculated as a percentage of their salary for each year of service. Alternatively, the scheme could also provide a pension based on the average salary of the member over their working life. This is called a “Career Average” pension.
Defined Contribution Schemes
This is an occupational pension scheme where contributions made by you and your employer are invested. At retirement the proceeds are used to buy a pension or other benefits. The value of the scheme, and therefore the income provided in retirement, depends on the amount of contributions paid and the investment return achieved.
Money Purchase Scheme
This is another name for a Defined Contribution Pension Scheme. It can be contributed to by your employer, or could be a personal scheme.
This is a type of Defined Contribution/Money Purchase Scheme. This pension can be built up whether you are employed, self-employed or not working. If you change jobs, or stop working, you can continue contributing to the scheme
SIPP – Self Invested Personal Pension
This is a type of Defined Contribution Scheme. This is a pension ‘wrapper’ that holds investments until you retire and start to draw a retirement income. It is a type of personal pension and works in a similar way to a standard personal pension. The SIPP may be held in a trust, government bond or security, endowment police or commercial property. You must take expert advice from a solicitor if either you or your spouse holds a SIPP as not all elements of the SIPP can be easily shared and this therefore needs to be taken into account as part of the wider settlement.
SASS – Small Self Administered Scheme
This is a type of Defined Contribution Scheme. They are invested schemes and are generally set up to provide retirement benefits for a small number of a company’s directors and/or senior or key staff. They can be open to all employees and their family members, even if they don’t work for the employer.
It is vitally important to understand the value of a pension as divorce law allows pensions to be shared upon divorce.