Pensions and retirement

What happens to my pension in a divorce/dissolution of a civil partnership?

4 min read 16 Jun 23

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What happens to my pension in a divorce/dissolution of a civil partnership?

When people get married, no-one wants to consider the possibility that it won’t work out. But the reality is that some relationships do end. And following the biggest change to changes to the law in England and Wales in 50 years, it’s now easier to get divorced or a dissolution of a civil partnership.

Marital assets – ensuring a fair split

Divorcing, or legally ending a civil partnership, means finances and assets such as homes and cars need to be split fairly – these are important decisions that need to be made at a time when emotions are likely to be heightened.

During a divorce/dissolution, couples often focus on practical issues, such as childcare and who might remain in the house. But many underestimate the value of personal or company pensions when reaching a financial agreement, and might not know that they’re usually shared. The reality is pensions that have been built up over decades could be worth more than a house.

There are legal rights when it comes to sharing pension savings. However, as our Retirement Revisited report* shows, just 8% of retirees who are divorced or going through a divorce had received any of their partner’s pension. Our research shows that 70% of those who are divorced (or going through one at the time of survey) said they failed to receive any of their partner’s pension as part of the settlement.

With so much to think about, it's important to get informed and consider taking financial advice.

What happens to pensions in a divorce/dissolution?

There are three main ways a pension can be split, and it can seem complex without getting financial and legal advice about what might be the right option for you.

Each has pros and cons and there are often tax considerations that may apply later in your life. Laws in Scotland and Northern Ireland are different, too. Let’s look at the three options below:

Pension sharing: the clean break

Pension assets are split straight away,so when each party can access the pension, usually age 55 or over,  they're free to decide what to do with their share independently. It’s worth noting that, depending on the circumstances, what’s considered a fair share for each person doesn’t necessarily mean half – the split could be more or less than half.

In this scenario, both parties have retirement savings after the split, which won’t be affected by any remarriage or death, and there is a clean break to your finances; but it might be difficult to split some types of pensions and there’s usually a fee to pay to the pension provider to do that. A financial adviser may be needed to split a pension.

Offsetting: pensions vs assets

In this scenario, each person keeps their pension savings, which are offset against other assets – for example, if one half of the couple has a big pension pot, the other might get to keep the house if it has a similar value.

This can however mean that one person is left with no retirement savings. So, it’s important to think about what your retirement plan might be if you’re in this situation and were relying on having access to your partner’s pension income.

Pension attachment or earmarking: the courts decide

In this scenario, courts make an order that some, or all, personal or company pension benefits must be paid to their ex-partner, when they become payable.

This doesn’t allow for a clean break and the seperated couple may need to keep in touch for years. Death or remarriage could change things and what’s paid out to an ex-partner could be reduced.

If the pension holder delays their retirement or stops paying into their pension, this will affect when benefits might become payable and how much a pension is worth. Tax implications can be less favourable, too.

Considering divorce/dissolution? Here are some financial things to think about

1. Consider financial advice now

Divorce/dissolution are complicated, and when it comes to splitting assets, it makes sense to work with someone who is an expert on financial matters. They’ll help you understand what you need to know and advise on the best way to split assets fairly and how to prepare your financial affairs for life after your divorce.

They’ll look at all the assets involved, including the house, other properties or businesses, cars, pensions, investments and savings. They’ll know what the options are around pensions and advise on what’s right for you. They’ll consider things like tax, and knowing what you’re entitled to when it’s time to take pension savings, so that you can plan.

If you don’t have a financial adviser, you can find one that’s right for you.

2. Look ahead

A financial adviser can review all your finances so that you can look forward to the future with confidence that things are in good order. They can offer advice on tax planning and the need, for example, to take out new life insurance to reflect your new circumstances.

3. Sort your finance for your new circumstances

Remember to make or change your will so that your money and any assets go to those you want them to. It might be easy to forget to do this given there’ll be so much to think about, but getting advice can be vital, especially when it comes to children, stepchildren and wider family members to whom you want to leave something. You can make changes to a will or create a new one by speaking to a solicitor or doing it yourself. For more information on these options you can visit the Citizens Advice service 

As pensions are not normally covered by your will, you may wish to contact your pension provider. They'll be able to discuss what changes, if any, are required.

Getting help

Seperating from someone be very stressful both financially and mentally.  If you're struggling with poor mental health, it’s important to get help and talk to someone. Whether that’s a GP, a friend or contacting a charity like the Samaritans. 

The Moneyhelper website has lots of information on what to do financially in a divorce or dissolution. 

Moneyhelper also offer a free service to talk to a pension specialist about your options when it comes to your pension and divorce/dissolution. You can find more details on how to book an appointment here.

* Retirement Revisited Report by M&G, October 2022.

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