On divorce, there is frequently a disparity
between the husband and the wife's pension provision. Commonly,
the husband's pension is much larger because he has been the
breadwinner whilst the wife has remained at home bringing
up the family.
In the past, the only way to compensate
a spouse for this disparity was by offsetting i.e. awarding
one spouse other liquid assets to compensate for the loss
of a pension.
Since 1st December 2000, however, the
divorce courts have had the power to make orders dividing
pensions between spouses. These are called Pension Sharing
Orders. A pension can only be divided by order of the court,
not by private agreement.
A Pension Sharing Order provides for
a specified percentage of the 'cash equivalent transfer value'
('CETV') of the pension to be transferred to the other spouse.
The cash equivalent transfer value is the figure which the
pension provider could transfer to another pension fund (if
the fund was being transferred between providers) at the time
of the Order.
CETVs do not always reflect the real
value of a pension. It can sometimes be important, therefore,
to obtain valuations of pension schemes from Independent Financial
Advisers, both as to the real value of the pension at the
time and the anticipated value at date of retirement. It is
also necessary to obtain expert advice as to the amount of
the pension that would be provided by a pension sharing order.
Because women usually live longer than men the same CETV will
produce a lower pension for a woman than for a man of the
In the past, it was often difficult
adequately to provide for a wife's income in the event of
her husband's death after retirement. Now a wife can have
her own pension unaffected by death of her ex-husband.
However, the cost of setting up a pension
sharing order (usually £750) may mean that it does not
make economic sense for a pension sharing order to be made
in respect of pensions with a small CETV.