Alternatively, pension attachment orders mean that a pension fund remains with the prior fund holder, with a percentage of benefits paid to the non-holder at the date of the pension going into payment.
Attachment orders are a rarity, having been largely superseded by pension sharing orders, but can be useful tools in certain scenarios where a pension share may reduce the value of the underlying scheme.
However, attachment orders have a number of significant drawbacks, not least that the payments terminate upon the death of the fund holder and therefore usually need to be underpinned with life assurance policies, which can be expensive.
Some pension schemes, for example main public sector schemes like the NHS, require the pension creditor to remain a member of their scheme, while others will require that the recipient of a pension share must transfer out of their scheme to another provider. Some providers will give you both options.
Off-setting is when pension wealth is traded off against other assets, most commonly the family home. It seems a good option for someone whose primary concern is to remain in the family home, but it does come with its pitfalls.
The first is that it is not easy to compare the value of a pension (which will go up and be a future income stream) against the value of a property or money in the bank. Neglecting to secure pension assets means you could end up without a financial safety net in retirement.
The second, as mentioned above, is that pensions, especially high-value public sector ones, are difficult to value. The figures that many pension funds provide for an immediate capital value of the pension can be misleading.
Not only does this result in women trading a long-term guaranteed income for short-term stability, but the misleading capital values of DB pension schemes mean many do so at a vast undervalue, potentially sacrificing the equivalent of a six-figure sum.
Despite the options, pension sharing orders are actually a comparative rarity. With financial orders only made in around one in three divorces and only 12 per cent of those featuring pension sharing orders, out of the 100,000 divorces of opposite-sex couples in the UK each year, only around 4,000 people receive a share of their ex-spouse’s pension.
A recurring question among practitioners is whether dealing with pensions should be compulsory in divorce proceedings. Pensions do feature as they form part of the financial disclosure process, but they do not have to be included in the negotiations or final financial settlement.
