Will My Pension Be Considered An Asset In Divorce?

If you are considering divorce, and either you or your partner has a pension, you may be wondering whether it will be considered an asset. The short answer is that it will, regardless of what type of pension it is. 

The longer answer is that your financial disclosure (a comprehensive listing of financial assets and requirements, made at the beginning of a divorce) should include any pension schemes in your name. This is to ensure that both parties receive a fair share of the wealth they held as a couple, and that provisions have been made for both parties’ retirement.

Pensions can be divided into four categories: private pensions (including pensions from work), state pensions, defined contribution pensions, and defined benefit pensions. 

Private Pensions

Private pensions are basically retirement savings schemes. You and/or your company make contributions over time to a “pension pot” which might be either a defined contribution scheme or defined benefit scheme. 

Defined Contribution Pensions

In a defined contribution pension, you contribute a set amount each month. If it’s a workplace pension, your employer will also contribute. This money is subsequently invested into a tax-free wrapper which holds a variety of assets (such as stocks, bonds, and cash). The amount you’ll receive in retirement is not fixed; it is determined by factors such as the amount donated, the length of time the money is invested, and the performance of the investments. These are becoming the most popular type of occupational pension in the UK. 

Defined Benefit Pensions

In contrast, defined benefit pensions provide a fixed amount in retirement. They’re often set up by your employer and are also known as ‘final salary’ or ‘career average’ pension plans. The amount you receive at retirement is determined by the scheme’s rules, which often take criteria such as pay and duration of service into account. These pensions were once prevalent, but are becoming increasingly rare due to the financial risk they pose to providers. 

State Pensions

The state pension is a regular payment from the government that you can get once you reach the state pension age (now 66 years old, although this will increase). It’s worth noting that your basic state pension cannot be split if your marriage or civil partnership terminates, but its value can be included in financial arrangements. In rare instances, a divorced person can use their former spouse’s National Insurance contributions to supplement their basic state pension. 

Other Pensions 

In addition to the pensions listed above, you may hold the following less common pensions: 

• Public sector pensions are typically defined benefit programmes offered to public sector employees, including those working for the NHS, Civil Service, and Armed Forces. They offer pension benefits based on salary and length of employment. 

• A self-invested personal pension (SIPP) is a type of defined contribution pension scheme that allows you to choose your own investments. It’s an excellent option for those who are knowledgeable about investing. 

• A small self-administered scheme (SSAS) is similar to a SIPP, except it is designed for a small number of senior employees inside a company. These are typically firm directors or top executives, although SSAs can also include other employees and even family members. 

Remember, it is vitally important that you mention any pensions you have in your financial disclosure, no matter what type they are. While different pensions must be dealt with in different ways, making sure they are taken into consideration is the only way to ensure a fair and equitable distribution of assets. 

If you are considering a divorce and are considering legal advice, contact Blanchards. Our friendly team of legal professionals will be happy to discuss your case personally.