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Pension Attachment Orders (known as Earmarking Orders in Scotland) are a method of sharing pension benefits following divorce or dissolution of a civil partnership. While they can be a useful tool in certain divorce scenarios, they come with significant limitations, particularly the lack of a clean break between parties.
Potentially attachment is generally most suitable for older couples, where there's only one significant pension and limited other assets to offset against it and where securing death-in-service benefits is important to the financial security of the ex-spouse.
A Pension Attachment Order is a court order that directs a pension provider to pay a specified percentage of a pension holder's benefits to their ex-spouse or civil partner when the pension comes into payment. Unlike Pension Sharing Orders, the pension remains in the original member's name, but the provider is instructed to divert some of the benefits to the ex-partner when payments begin.
The court issues an order specifying what percentage of the member's pension benefits should be paid to the ex-spouse.
The pension remains in the member's name and under their control until retirement.
When the pension holder starts drawing their pension (which they can do from age 55, rising to 57 from 2028), the pension provider will pay the specified percentage directly to the ex-spouse.
If the pension holder transfers to another pension scheme, the attachment order follows the pension to the new scheme.
Pension Attachment Orders can cover a percentage of the pension income and/or a percentage of any tax-free lump sum and/or a percentage of any death-in-service benefits.
Pension Sharing - provide a clean break by transferring a percentage of one spouse's pension to the other immediately. The recipient can either become a member of the same scheme (known as "internal transfer") or transfer their share to a different pension scheme (an "external transfer"). This is generally considered the most equitable solution for younger couples with significant pension assets.
Offsetting - involves leaving the pension intact with its original owner, but giving the other spouse a larger share of other matrimonial assets to compensate. For example, one spouse might keep their pension while the other keeps more of the equity in the family home. This approach can be simpler but requires careful valuation to ensure fairness.
Understanding how pensions are valued is crucial to making informed decisions:
Cash Equivalent Transfer Value (CETV): The standard valuation method that shows what a pension scheme would pay if the member transferred out. However, this often undervalues defined benefit (final salary) pensions.
True Value: For defined benefit schemes, a more accurate valuation may be needed that considers the true replacement cost of the benefits. This can be significantly higher than the CETV.
Income Value: Looking at the sustainable income the pension could provide rather than just a capital sum can be more meaningful, especially for older couples.
Most divorce financial proceedings use CETV as a starting point, but expert pension actuaries may be needed to provide more accurate valuations, especially for complex schemes.
Different pension schemes have different characteristics that affect how they should be handled in divorce:
Defined Contribution Schemes: These are typically easier to divide through pension sharing and have a straightforward CETV.
Defined Benefit Schemes: These can be more complex and often more valuable than their CETV suggests. They may have additional benefits like guaranteed inflation protection that aren't fully captured in standard valuations.
Public Sector Schemes: These often have special rules and can be especially valuable due to their guaranteed benefits.
For the Receiving Spouse
Retirement Security: Provides financial provision for retirement for a spouse who may have limited pension of their own.
Growth Potential: The recipient benefits from any future growth in the pension fund without having to manage the investment themselves.
Death-in-Service Protection: Can provide financial protection through death-in-service benefits if the pension holder dies before retirement.
Tax Efficiency: The pension holder pays the income tax on the pension, even on the portion paid to their ex-spouse (which can be advantageous if the ex-spouse is in a lower tax bracket).
For the Pension Holder
Retention of Control: The pension holder maintains control over the investment decisions and when to draw the pension.
No Immediate Division: Unlike pension sharing, there's no immediate reduction in the pension fund's value.
Preserves Pension Rights: The pension holder retains all their membership rights within the scheme.
For the Receiving Spouse
No Control Over Timing: The recipient has no control over when the pension is drawn, which can be problematic if they're older than the pension holder or need funds sooner.
Dependency: The recipient remains financially linked to their ex-spouse, potentially for decades after divorce.
Risk of Loss: If the pension holder dies after retirement, the recipient may lose their income (unless the order includes provision for a survivor's pension).
Remarriage Clause: In most cases, if the recipient remarries, they lose their right to receive the pension income (though this doesn't usually apply to lump sums unless specified in the order).
No Control Over Investments: The recipient has no say in how the pension is invested or managed.
For the Pension Holder
Ongoing Financial Ties: No clean financial break from the ex-spouse.
Administrative Burden: Need to keep the ex-spouse and pension provider updated with contact details.
Lifetime Allowance Testing: The full pension value is tested against the pension holder's Lifetime Allowance, even though part of it will be paid to the ex-spouse.
Restricted Flexibility: May limit the pension holder's options regarding pension withdrawals under pension freedoms.
Tax Planning Scenarios: Where there are tax advantages to maintaining the pension in one person's name.
Our specialist divorce lawyers provide comprehensive support with pension attachment matters:
Expert Assessment - whether a Pension Attachment Order is appropriate for your specific circumstances.
Negotiation - with your ex-partner's legal team to reach a fair agreement.
Valuation Support - we work with pension actuaries to ensure accurate valuation of pension benefits.
Drafting Orders - we draft correctly worded orders that pension providers will accept and implement.
Implementation - communications with pension providers to ensure proper implementation of the order.
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