Article by Sarah Pennells of SavvyWoman.co.uk
Many women who get divorced don’t realise how important the pension can be. Don’t ignore it.
For most couples who go through a divorce, deciding what happens to the family home is the biggest financial decision they have to make. It’s easy to see why. Your home is a tangible object and you can work out – reasonably easily – what it’s likely to be worth. It may also have huge emotional importance. The same cannot be said for a pension. It’s not only divorcing couples who find pensions a bit of a mystery, many divorce lawyers do as well. However, it can mean you lose out and – if you do – making up the shortfall can be difficult, if not impossible.
Q. In a divorce, who gets the pension?
A. The answer isn’t straightforward (no surprise there!) and couples can split the pension in different ways. The three options are to divide it at the time of divorce (it’s called ‘sharing’ but it’s essentially splitting the pension), to ‘earmark’ some of the pension, which means that some of the fund is sort of ringfenced and paid to the wife of the pension plan holder (or husband) when they retire, while the third option is to offset the value of the pension against something else (such as the house).
Q. Which option is best?
If you have the choice, splitting – or sharing – your pension at the time you get divorced is the best option. Earmarking it brings with it all kinds of problems – the main one being the fact that you can’t start to take your pension until your ex husband takes his and you have no right to get sent pension statements etc. If your divorce is acrimonious it may be that your ex decides he’d rather keep you in the dark.
Offsetting is a useful option in some circumstances but it can make it much harder to ringfence some of the asset for your retirement.
Q. Do I have an automatic right to join my ex husband’s pension scheme?
The short answer is that you don’t. Not all pension schemes accept what’s called a ‘pension credit’ member – which means someone who’s entitled to join a pension scheme because they’ve got divorced or their civil partnership has dissolved (it’s nothing to do with the state benefit called ‘pension credit’).
If you aren’t able to join your ex’s pension scheme, you’ll be given a lump sum that you can then pay into your own pension.
Q. Will I always get half my husband’s pension?
No, there’s no reason why you would necessarily get half his pension; you may get none of it, less than half or more than half. For example, if the pension is supposed to be split to give you and your ex husband an equal income in retirement you may receive a larger share of it.
Women live longer than men so a pension fund that’s split in two would give a man a higher level of pension on a yearly basis. From the end of 2012, pension companies will no longer be able to take gender into account when working out how much retirement income a lump sum would generate, so it will be interesting to see what effect that has on the way pensions are divided in divorce.
Q. What about the state pension?
The state pension is – in some ways – more straightforward than private pensions because you can use your ex husband’s National Insurance record to claim a basic state pension on his entitlement for the years during which you were married or for the whole of his NI record up to the date of divorce (whichever generates the bigger pension).
It won’t affect the pension he receives and he doesn’t even have to know about it. However, you do have to know his National Insurance number in order to claim using his NI record and your ex husband has to have reached state pension age in order for you to claim your state pension on his NI record, although he doesn’t have to have started claiming his pension.
You’re not automatically entitled to a share of your ex’s additional state pension (which could be SERPS or the state second pension, or a mixture of both), although if your husband’s private or work based pensions are divided the SERPS or state second pension may also be taken into account.
Photo credit Grant Cochrane