Collins Actuaries specialises in giving advice and help on pensions to family law solicitors who deal with members of the public who are getting divorced.  We do not advise the public directly but any member of the public reading this should find it helpful to prepare for instructing a solicitor and, if thought appropriate, to ask the solicitor if actuarial advice would be advisable.

Your pension rights are important

Nowadays your pension can be more valuable than your house.  In 1999 the law changed.  It now says; when a married couple divorce and divide their finances, they MUST take the pension into account.  It is important to keep your rights to your or your husband's pension, so that you have an income of your own when you retire. The role of the state in providing an old age pension is reducing.  More and more you are expected to look after yourself. 

This website assumes 'you' are the wife but the law applies equally to the husband.

What happens to a pension at divorce?

The pension is part of your finances whether it belongs to you or your husband.  It MUST be considered in all cases of divorce.  There are three ways you can sort out your pension.

Offsetting

The court looks at the couple's finances as at the date of separation.  It can compensate a wife for the loss of pension rights - for example, the wife might keep the house and the husband would then keep his pension. However, offsetting will depend on what other assets you and your husband have.

Sharing Order

This is new since 1st December 2000.  The pension can be shared.  The court can order the pension scheme to take some of the husband's pension rights away and make them over to the wife.  The wife gets her own pension rights.  These are separate from her husband's.

Attachment/ Earmarking Order

This is almost never used in Scotland.  The court can order the pension scheme to pay part of the husband's death benefit or lump sum in retirement direct to his wife. An order cannot be made in respect of pension payments.  The wife remains dependent on the husband.  She has to wait for him to die or retire before she gets her share. If no lump sum is taken on retirement the earmarking order will fail.  On the whole it is normally better to use a pension sharing order.

Pension sharing - what are the benefits?

A pension sharing order in your favour means you will have a pension of your own.  It doesn't matter if your husband dies, or when he retires.  If you are able to place your new pension share in a totally new pension scheme, you can choose when you wish to retire subject to any restrictions imposed by legislation.  If you remarry after this divorce it will not affect a pension sharing order.  You can choose whom you want to receive the benefits of your new pension rights in case you die before retirement.  If you marry again, your new husband may receive a widower’s benefit on your death.

After the court order your husband cannot go back to court to change the amount of the pension share.  Your new pension may allow you to take out a lump sum when you retire and you won't have to pay tax on this sum.  However, you do have to pay income tax on the monthly income you get from the pension when you retire.  Once you have started your new pension you may be able to continue to build it up yourself.

Who sorts out the pension rights?

Experts can put a value on a pension, just as an estate agent or professional surveyor can put a value on a property.  The pension scheme can tell you something called the CETV (Cash Equivalent Transfer Value). Quite often there are mistakes in the calculations or the scheme administrators have not used the correct information.

An actuary is a pensions specialist.  Cases involving pensions are a very complex business.  An actuary can make sure it's done correctly and all the issues are taken into account. He will also advise as to whether it is in your interest to raise the issue of any value that you or your spouse may have in the State Earnings Related Pension (SERPS).

If the value of the CETV were large – say £20,000 or more, it would probably be advisable for your solicitor to consider having the figure checked by an actuary.  This is particularly the case for members of the uniformed services and where the pension is in payment or there has been a long gap between the date of separation and the date the CETV is calculated.

The final stage, if a pension share has been agreed, is the implementation of the pension sharing order.  Again in Scotland, especially if there is going to be a long gap between the date of separation and the date of implementation, an actuary can indicate the likely outcome of various possible methods of implementation.