When a marriage breaks down, the family wealth (known as ‘matrimonial assets’) is shared between the separating parties. Matrimonial assets include things like the equity you may have in the family home or money in the bank, but it also includes the value of the pension you’ve built up.
Since 1 July 1996, divorcing couples could agree to share their pension when dividing up their matrimonial assets. Initially this was done by something called an ‘earmarking order’ which ringfenced a part of the pension and/or lump sum you’d receive when you retire enabling this earmarked portion to be paid to your former spouse.
But with this provision, the former spouse won’t have access to their portion of your pension until you take your retirement benefits. It would also stop when you die – meaning it didn’t provide a clean break solution.
Since 1 December 2000, it’s been possible to break up a pension by using a ‘pension sharing order’. Pension sharing orders result in a part of your pension being given to your former spouse, so they have their own pension pot which is separate and independent from yours.
Because we transfer a part of your pension pot to your former spouse, we must reduce your pension by the percentage that’s shared and transferred to your former spouse; this is known as a ‘pension debit’.
If you’ve entered into a pension sharing arrangement following divorce, please make sure that a pension sharing debit line shows on your annual pension statement; these are issued by 31 August each year. If you don’t see a pension sharing debit line, then we haven’t been told about your pension sharing arrangement.
Just because we haven’t been told about the pension sharing, this doesn’t necessarily mean your pension won’t be reduced. We’ll still need to reduce your pension when we’re eventually told about the pension sharing and if your pension has been put into payment you could end up with debts because your pension may have been overpaid. There may be an exception to this is if your divorce was conducted under Scottish law, as this would involve a time limit for submitting your pension sharing documents.
So, it’s important that you check your annual pension statement and tell us about your pension sharing order if it isn’t showing. We’ll need to see your divorce decree and the pension sharing order before we can update your pension record.
If you entered into an earmarking arrangement, you won’t see this on your annual pension statement. Instead, you’ll be told when you receive your retirement options about the reduction the earmarking order has made to your retirement benefits.