Pension Sharing in Financial Remedy Proceedings: Why Fairness Means Looking to the Future

At Forbes Solicitors, we are experts in navigating the complex process of financial remedy proceedings following divorce or the dissolution of a civil partnership. Among the most significant aspects of these proceedings is the treatment of pensions. While assets such as the family home tend to draw the most attention, pensions can be among the most valuable assets in the marital pot.

Most divorces are needs-based based which means that the total assets do not exceed the parties’ needs. For many couples, a pension can often be a substantial proportion of the marital wealth, sometimes exceeding the value of the family home. Despite this, pensions can be overlooked and this can result in serious unfairness, particularly where one party (often due to childcare responsibilities) has had limited opportunity to contribute to a pension during the marriage.

The Legal Framework

Pension sharing was introduced by the Welfare Reform and Pensions Act 1999, which added provisions to the Matrimonial Causes Act 1973. The provisions apply to divorce, nullity orders and civil partnerships. It allows the Court to make Pension Sharing Orders in relation to “shareable rights” under certain pension schemes. The vast majority of pensions may be shared, including additional state pension and pensions in payment. There are some exceptions, including basic state pensions and some overseas pensions. If you are unsure about the shareability of your pension, speak to your solicitor and they will be able to advise you. The acts allow the Court a wide discretion to achieve a fair outcome, considering all the circumstances of the case, including the parties’ income, earning capacity, financial needs, and contributions. The Court’s objective is to achieve a fair division of assets, not necessarily an equal one.

Pension Sharing: How does it work?

A pension sharing order allows the Court to divide pension rights at the time of the financial settlement, transferring a percentage of one party’s pension into a pension in the other’s name. Allowing each party to hold their own independent pension provision for the future. Pension sharing achieves a clean break and provides autonomy for the parties.

The principle behind pension sharing is fairness across the lifetime of the parties, not merely at the point of divorce. It ensures that both individuals can approach retirement with a degree of financial security, reflecting the fact that pensions accrued during the marriage were built through joint endeavour, whether one spouse was providing for the family financially or supporting the family in other ways like providing childcare and managing the family home and lifestyle.

How the Courts Approach Pension Division

The Courts consider several key questions when assessing pensions:

1. Is the pension a matrimonial or non-matrimonial asset?
   Pensions built up during the marriage are generally treated as matrimonial property, while those accrued before marriage or after separation may, in some cases, be treated differently. However,  fairness is important to the Court and this may require some blending of these categories.

2. What is the appropriate valuation method?
   The Court relies on Cash Equivalent Transfer Values (CETVs) and a Pension on Divorce expert is often necessary to interpret these figures accurately, particularly for defined benefit schemes where CETVs can understate true value.

3. Should the aim be equality of capital or equality of income on retirement?
   The case of Martin-Dye v Martin-Dye [2006] highlighted that an equal split of CETV may not achieve fairness in terms of future income. The Court will consider the practical effect of pension division to ensure each party’s retirement prospects are actually comparable.

4. Are the parties’ needs overriding?
   In financial remedy cases, needs may take precedence over strict sharing principles, especially where the parties are older or have limited earning potential before retirement.

Fairness in Practice

A fair outcome may mean one party receives a larger share of the pension, while the other retains a greater share of liquid assets such as property or savings. The goal is a balance between present and future security. For example, where one spouse requires housing immediately but the other has a significant pension, the Court might “offset” pension value against other assets to equitably meet the needs of both parties.

However, such offsets must be handled with caution. Without proper actuarial input, it is easy to underestimate the true value of pension rights, potentially disadvantaging the non-member spouse. In practice, when a pension sharing order is being considered, either spouse can apply to the Court to jointly appoint a Pension on Divorce Expert, known as a PODE, who are an impartial expert who will review all the pensions held by both parties and provide a neutral, detailed analysis of each parti’s pensions, to help them achieve a fair financial settlement.

How Forbes Can Help

The Court’s approach to pensions reflects the central aim of fairness, ensuring that both parties can move forward with independence. Pension sharing orders recognise that marriage is a partnership, where both financial and non-financial contributions build the couple’s future security. At Forbes Solicitors, we work closely with financial experts to ensure pensions are properly valued and considered, protecting our clients’ long-term interests. Divorce brings change, but fairness in pension division ensures that both parties can look to the future with greater certainty.