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Splitting NHS pensions on divorce

Splitting NHS pensions on divorce

In this article, we look into how pension assets should be shared when a legally binded couple separate.

When a married couple or couple in a civil partnership separate, the starting point in terms of the legal position is that their pension assets should be shared equally.

If the couple have pensions of comparable value then it may be sensible for them to each simply retain their own pension pots. However, if one person’s pension assets are more valuable than the others, the court can implement what is known as a “pension sharing order”.

A pensions sharing order involves transferring a proportion of one person’s pension into a separate pension scheme in the other person’s name, with a view to achieving equality in retirement.

As an example, if Mr Smith has an Aviva pension worth £100,000 and Mrs Smith has a Standard Life pension worth £20,000 then the court’s assumption will be that the disparity in pension assets should be addressed. A percentage of Mr Smith’s pension can therefore be transferred out of his Aviva scheme and invested in a new scheme held in Mrs Smith’s name.

Achieving equality in respect of pension assets is not simply a case of dividing the value of the pension pot by two. That is because the Cash Equivalent Transfer Value (CETV) attributed to pensions can be extremely misleading; and so seeking to equalise pension assets based on CETV figures alone can produce extremely unfair and unequal outcomes. The CETV also doesn’t necessarily give you a clear picture as to what benefits or income a pension can produce.

On that basis, it is often necessary to obtain expert advice from an actuary (or pensions on divorce expert (“PODE”) in order to accurately assess the appropriate level of a pension sharing order due to a spouse following a divorce. An actuary is a pension expert who can look beyond CETVs and focus instead on the amount of income that a pension will generate in retirement (and the level of pension sharing order that would be required to result in both parties having the same level of income at retirement age).

Like all other forms of pension, NHS pensions will potentially fail to be shared following a divorce.

It is worth noting that CETVs can be particularly misleading in the case of NHS pensions - and indeed, all other forms of civil service pensions; including Teachers pensions, Armed Forces pensions and Police pensions.

That is partly because civil service pensions are often invested in various different and complex schemes which are subject to different rules. There is also uncertainty surrounding civil service pensions as a result of the “McCloud judgement” in 2018. The McCloud judgement confirmed that previous changes made to civil service pension schemes in 2015 had been unlawful; the government is currently taking steps to remedy those changes, which may result in existing civil service pensions increasing in value.

Given the complex nature of NHS pension schemes, it is always advisable to seek advice from both a specialist family lawyer and an actuary before agreeing to a pension sharing order.

If you require detailed advice about the sharing of NHS pensions, please speak to a member of the Family Team.

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