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This blog gives you an easy to follow guide on everything you need to know about pension attachment orders (aka "Pension Earmarking"), including:

  • What is a pension attachment order?
  • How does pension earmarking work?
  • What are the pros and cons of pension attachment orders?

Let’s take a look at a few things you need to consider before applying for a pension attachment order...

What Is A Pension Attachment Order?

A Pension Attachment Order (also known as a "Pension Earmarking Order") requires a divorced pension-holder to pay their ex-partner some money from their pension on retirement. This can either be in the form of regular payments, or via a lump sum.

Unlike some other forms of pension division, pension earmarking does not grant you a ‘clean break’ when you divorce, as you will still have a financial connection to your ex-partner via the pension.

Pension Attachment Orders Infographic

How Does A Pension Attachment Order Work?

When making a pension attachment order the court will determine how much of the pension should be given to the ex-spouse. This could be a set portion of the pension sum, or could even be up to the entire value of the pension, depending on the circumstances (to learn more about how the court decides to split your finances when you divorce, check out my <bloglink>divorce settlement guide<bloglink>).

The pension still belongs to the scheme member, but when the member's benefits become payable, they have to give a specific amount to their ex-partner.

The court can order one or more of the following awards to the ex-partner:

  • All or a portion of the participant's pension income;
  • All or a portion of the participant's tax-free cash amount;
  • All or a portion of any lump sum payable upon the scheme member's death.

For a better understanding, here's a quick example: Lucy and Jim <bloglink>get divorced<bloglink>, and the court decides that Lucy is entitled to a share of Jim's pension. The court order that Lucy should receive 50% of Jim's lump sum payment when he retires, and then 40% of his monthly payments thereafter.

Pros and Cons Of A Pension Attachment Order

Before you apply for a pension earmarking order, you should understand the pros and cons. Here’s a breakdown:

Pros

  • You can set aside benefits in case of a scheme member’s death.
  • The arrangements decided within the order apply to every pension scheme.
  • The ex-partner will receive a pension income in retirement.
  • If the scheme member moves to a new pension provider, the earmarking order will normally transfer to the new arrangement.
  • You have the option to earmark the pension income benefit or take a tax-free cash benefit.

Cons

  • You do not get a clean break after divorce from your ex-partner, and may need to maintain contact/ financial ties long after your divorce.
  • There is a lack of certainty when it comes to future payments, such as if the scheme member dies before retiring.
  • If the scheme member remarries, the earmarking order usually comes to an end.
  • The payments do not start until the scheme member chooses to retire - they can delay their retirement for several reasons.
  • If the receiving party retires before the scheme member, they won’t receive any pension payment until their ex-spouse retires.
  • Payments stop when the scheme member dies, which can leave their ex-spouse without a pension income.
  • The receiving spouse has no control over the pension, which might be reduced if their ex-spouse retires earlier than expected or reduces their income (for example by working part time).

You might have noticed that the benefits of pension attachment orders are somewhat outweighed by the disadvantages. For this reason it is rare for the court to make a pension attachment order these days, and they tend to favour the two main alternatives...

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What Options Do You Have Other Than Pension Earmarking?

Other than earmarking your pension, there are two ways to deal with pensions during a divorce settlement: Pension Sharing and Pension Offsetting:

Pension Sharing Orders

A <bloglink>Pension Sharing Order<bloglink> divides up the parties' pension at the time of the divorce and leaves the parties with their own separate pension funds.

The spouse receiving the award will be given a lump amount from their ex-spouse's pension (called the 'pension credit'). They then use this sum to go and open their own pension, with a new provider.

This way, the parties are both left with their own pension plan, in their own name, and which is tailored to their own demands and expected lifespan.

This is the major difference between a pension sharing order and a pension attachment order.

A pension attachment order is really a kind of <bloglink>spousal maintenance<bloglink>, paid from the other partner's pension fund. As such, it does not allow for a clean break settlement, and therefore is increasingly disliked by the courts.

Logos of mainstream pension providers
With a pension sharing order, each party has their own separate pension from their own provider.
Pension Offsetting

Unlike a pension sharing order or pension attachment order, pension offsetting does not split an existing pension between spouses. Instead, pension offsetting is a way to identify pension and non-pension assets when the divorcing parties are settling their finances, and then using a valuable non-pension asset (such as the house) to offset the value of the pension. This means that one person keeps the full pension and the other gets something else of equal value, such as a greater share of the equity in the <bloglink>family home<bloglink>.

What Is The Pension Attachment Order Process?

  • Submit the Form A online (application for a financial order). You can either do this yourself, or with the help of a solicitor.
  • Have your pension(s) valued by a specialist. The court will need this in order to determine what amount of the pension should be shared.
  • Once the court has made a pension attachment order, submit a copy of the order to the pension scheme provider.
  • The pension provider will then implement the order, and start to make payments to the receiving party when the pension becomes payable.

What Happens If Your Situation Changes?

Remember, it could be a long time between the <bloglink>pension attachment order<bloglink> being made (at the time you divorce), and it coming into effect when the scheme member retires.

But what happens if your situation changes in the intervening years?

  • If your former spouse remarries, then any earmarking order made against their pension payments will lapse, with the full pension being restored to the member.
  • If your former spouse dies before retiring, then the earmarking order will also lapse.
  • If a scheme member transfers their benefits to another scheme, the earmarking order will also be transferred.

For these reasons it's important you keep the pension provider up to date regarding any changes in your circumstances. It's also a reason the courts prefer pension sharing orders, as they are unaffected by changes to either spouse's circumstances after they have been made.

       

FAQ

What is the difference between a pension sharing order and a pension attachment order?

While a pension sharing order divides up the parties' pension provision at the time of the divorce and leaves both parties with their own separate pension funds; a pension attachment order makes regular payments from one party's pension to the other spouse upon retirement.

Can you opt for pension sharing without a court order?

No - you need to apply for court for a pension attachment order.

Is it compulsory to earmark your pension?

Pension earmarking is not compulsory. It is just one of the three options available to you, the others being <bloglink>Pension Sharing Orders<bloglink> and Pension Offsetting Orders.