After a long marriage, it is often the case that, other than the family home, the most valuable assets of the family are the couple’s pensions. To take what may be considered to be the traditional family, where the husband has been the main breadwinner through the marriage and the wife has spent some or much of the marriage caring for the children, it tends to be the husband who has accrued the largest pension. So, on separation, it is important to ensure that any major differences in the couple’s pension positions are not simply overlooked as this would risk resulting in one party to the marriage being significantly worse off in retirement than the other. So how can this disparity be addressed?
- Offsetting the value of the pension fund.
Where there are other assets available to the family, it may be possible to agree that the party with the lower pension provision receives a larger share of the other assets, such as the family home or savings/investments, by way of compensation for the difference in the pension funds. Careful consideration would need to be given as to the impact which this would have in retirement and whether the alternative distribution did indeed compensate for the loss of pension benefits.
- Pension Sharing
It is now possible for a pension fund to be ‘shared’ between a divorced couple. This would provide a share of the (usually) husband’s pension fund to be invested in a separate pension in the name of the wife, therefore providing her with an entirely independent pension which would be unaffected by the husband’s death or either of their remarriage. The share which the wife would receive is often calculated by assessing what share would provide both the husband and the wife with equality of income on retirement, thereby striving to achieve fairness.
- Pension Attachment
This is a relatively rarely used process which allows for a portion of the husband’s pension to be paid to the wife on his retirement, direct by the pension providers. However, the primary disadvantage with this arrangement is that such portion would no longer be paid on the wife’s remarriage or on the husband’s death, which tends to be why this provision is used only infrequently.
As pension funds can be of significant value, it is important to ensure that independent financial or actuarial advice is obtained where appropriate to assess the impact of the options outlined above.