If you are going through a divorce and you or your spouse has a pension, the pension is almost certainly the most valuable asset you will divide. Most couples focus on the family home, and most solicitors spend the bulk of their time on property. But for many people approaching their forties or fifties, the combined pension wealth they have built over two careers is worth more than the equity in the house, and it will have a far greater influence on how comfortable their retirement turns out to be.
This guide explains what a pension sharing order actually is, how it works in practice, the difference between pension sharing and pension offsetting, and what you should ask before agreeing to any pension settlement in a divorce.
In My Experience
“Pensions get overlooked far more often than they should. They are the last thing most couples think about: the family home dominates the conversation, and the pension is treated as an afterthought. The most common mistake I see is one spouse agreeing to take a larger share of the property in lieu of a pension share, without anyone having properly modelled what that pension is actually worth. For defined benefit schemes in particular, the CETV can be deeply misleading. I’ve seen cases where a pension valued at £300,000 on paper was worth well over £600,000 in terms of true income once properly stress-tested. The spouse who walked away with the house thought they’d done well. In most cases, they hadn’t.”
A pension sharing order is a court order that transfers a specified percentage of one spouse’s pension to the other spouse at the point of divorce. The percentage is agreed as part of the financial settlement and approved by the court. Once the order is sealed and implemented by the pension provider, it creates a completely separate pension credit for the receiving spouse.
The receiving spouse becomes an independent member of the pension scheme, or transfers the credit out to their own chosen pension. They own the pension credit entirely: it belongs to them, not to the ex-spouse, and it is entirely separate from that point forward. The original pension holder sees their pension value reduced by the percentage transferred.
Pension sharing orders can be made against almost every type of pension: workplace defined contribution pensions, personal pensions, SIPPs, and defined benefit (final salary) pensions. State Pension cannot be shared via a pension-sharing order, though deferred and additional State Pension accrued before April 2016 can be addressed in some circumstances.
What is the difference between pension sharing and pension offsetting?
Pension offsetting is the alternative approach, and it is the one I see agreed most often without the receiving spouse fully understanding the trade-off they are making.
With pension offsetting, instead of dividing the pension directly, one spouse takes a larger share of another asset, most commonly the family home, in lieu of a share of the pension. So a spouse who might be entitled to 40% of a pension worth £500,000 might instead agree to take an extra £200,000 of equity in the property.
The appeal of offsetting is that it is simpler: no pension sharing order is needed, no actuarial report is required, and the property settlement can proceed without waiting for pension values to be formally assessed. For the spouse keeping the pension, it is often attractive because they retain their full pension intact.
The problem with offsetting is that it compares fundamentally different assets. The family home is accessible, visible, and emotionally familiar. A pension is locked until at least age 57 and is less tangible, but it grows free of income tax and capital gains tax inside the wrapper, and for a defined benefit pension, the income guarantee is an asset that does not have a straightforward cash equivalent.
The offsetting calculation frequently undervalues the pension, particularly when the pension is a defined benefit scheme, because the Cash Equivalent Transfer Value (CETV) used in the calculation does not reflect the true economic value of a guaranteed income stream. A pension worth £400,000 on a CETV basis can be worth significantly more when valued as an annuity producing £20,000 per year for life with full inflation protection.
How is the pension sharing percentage calculated?
The pension sharing percentage is usually negotiated as part of the overall financial settlement, with input from both parties’ legal teams and, ideally, a specialist pension expert known as a Pensions on Divorce Expert (PODE).
The starting point for defined contribution pensions is the Cash Equivalent Transfer Value (CETV), which is the value the pension provider places on the pension at a specific date. For defined benefit pensions, an actuarial calculation is required to convert the promised income into a comparable transfer value.
The Pension Advisory Group’s PAG2 guidance, published in 2024 and used by family courts across England and Wales, sets out the framework for pension on divorce cases and strongly recommends that a PODE be instructed in any case where the pension is a significant asset.
Once both parties’ pension values are established, the sharing percentage is agreed as part of the overall settlement. This is not simply a 50/50 split: it depends on the overall balance of assets between the couple, their respective incomes, their ages, and how the pension interacts with the other elements of the settlement.
How does the pension sharing order get implemented?
Once the financial consent order including the pension sharing order is sealed by the court, the implementation process begins. The pension sharing order is sent to the pension provider, usually by the solicitors. The pension provider has a statutory period, typically four months, in which to implement the order.
The receiving spouse then has a choice: they can become an entitled member of the same pension scheme as the original holder, or they can transfer the pension credit to an external pension of their choice. If the original scheme is a defined benefit scheme, the receiving spouse usually does not retain the defined benefit structure: they typically receive a money purchase credit or transfer out to a personal pension.
Once the order is implemented and the credit is transferred or allocated, it is entirely separate from the original pension. There is no ongoing connection, no adjustment if the original pension performs differently, and no interaction with the ex-spouse’s pension position going forward.
For defined benefit schemes, the full process can take six to twelve months from the date the consent order is sealed. This is worth accounting for in the financial planning timeline.
What happens to the pension credit if I die before accessing it?
If you receive a pension credit via a pension sharing order and then die before you access it, the treatment depends on the type of pension the credit sits in.
For a defined contribution pension credit, whether held in the original scheme as an entitled member or transferred to a personal pension, the credit will normally form part of your nominated beneficiary arrangements or your estate. Defined contribution pensions held outside the estate for inheritance tax purposes are a significant benefit, and nominating beneficiaries explicitly is important once the pension credit is in place.
For defined benefit pension credits, the position depends on the specific scheme rules. Some schemes provide a lump sum on death before retirement, others provide a dependant’s pension, and others provide nothing. This is one of the reasons why taking the defined benefit credit and transferring it to a personal pension can sometimes be preferable to remaining in the original scheme as an entitled member, though this decision requires careful individual advice.
Should you take financial advice as part of your divorce financial settlement?
For any divorce where a pension is involved, I would strongly recommend that both parties take independent financial advice alongside their legal advice. Lawyers are expert in the legal process and the structure of consent orders. They are not typically specialists in the long-term financial modelling of different pension settlement options.
The pension values used in offsetting calculations are almost always underestimated for defined benefit schemes. An independent financial adviser can model what the promised pension income is actually worth as a comparable cash figure, which can significantly change the perceived fairness of an offsetting arrangement.
The PAG2 guidance from the Pension Advisory Group, published in 2024, explicitly recommends PODE involvement in any case where pensions are a significant part of the settlement. Both family courts and leading family law practitioners increasingly expect pension specialist input in high-value cases.
In My Expereince
“Clients often say they wish they had spoken to a financial adviser before starting divorce proceedings. Whatever the stage, my advice is always to take financial advice during a divorce, and in practice this is usually introduced through the solicitor.”
Frequently Asked Questions
What is a pension sharing order?
A pension sharing order is a court order made as part of a divorce financial settlement that transfers a specified percentage of one spouse’s pension to the other. It creates an entirely separate pension credit for the receiving spouse, which they own independently and can access in their own right at retirement.
Is pension sharing or pension offsetting better?
How long does it take to implement a pension sharing order?
Do I need a financial adviser for a pension sharing order?
What is a PODE?
Can I transfer my pension sharing credit to my own pension?
What if my ex-spouse's pension is a final salary (defined benefit) scheme?
Important: This article is for general information only and does not constitute personal financial advice. Tax treatment depends on individual circumstances and may change. Always speak to a qualified financial adviser and a family law solicitor before making decisions about your pension settlement on divorce.