Navigating Pension Sharing Orders in the UK: Expert Advice from Caliber Financial Management Ltd

Navigating Pension Sharing Orders in the UK: Expert Advice from Caliber Financial Management Ltd

Caliber Financial Management Ltd – As Independent Financial Advisers (IFAs) specialising in divorce and retirement planning, Caliber Financial Management Ltd is here to guide you through the complexities of pension sharing. With over 20 years of experience, our team helps divorcing couples secure fair outcomes and build resilient financial futures. Contact us today for personalised advice tailored to your situation.

As relationships evolve, so do financial considerations—especially when it comes to retirement savings. In the UK, pensions often represent one of the largest assets in a marriage or civil partnership, making their fair division crucial during divorce or dissolution. Pension Sharing Orders (PSOs) provide a structured way to split these assets equitably, ensuring both parties can plan for a secure future. This article explores the essentials of PSOs under current legislation, outlines the process, and illustrates with practical examples. Whether you’re navigating a separation or advising clients, understanding PSOs is key to achieving a clean financial break.

What is a Pension Sharing Order?

A PSO is a court order that divides pension rights between divorcing spouses or civil partners, transferring a specified percentage of one party’s pension to the other as a “pension credit.” This creates independent ownership for the recipient, allowing them to manage their share separately—unlike older methods like earmarking, which tie benefits to the original holder’s decisions. PSOs apply to most occupational and personal pensions built up during the relationship, promoting fairness by recognising non-financial contributions like childcare.

Pension sharing has become the preferred method for its tax-neutral transfers and flexibility, enabling a “clean break” where neither party remains financially dependent on the other’s pension outcomes.

The Step-by-Step Process

Implementing a PSO typically takes 6-9 months for straightforward cases, though complexities like multiple schemes can extend this. Here’s how it works:

1. Disclosure and Valuation: Both parties disclose all pensions. Schemes provide CETVs—actuarial estimates of pension worth—valid for three months. This step takes 2-6 weeks.
2. Negotiation and Court Application: Solicitors negotiate a fair split, often via mediation. The court issues the PSO specifying the percentage (e.g., 40%) and transfer details. Consent orders speed this up (4-12 weeks); contested cases may take longer.
3. Service and Implementation: The order is served on scheme trustees, who create a pension debit (reducing the original holder’s benefits) and credit within four months. The recipient chooses an internal transfer (staying in the scheme) or external (to a new provider like a SIPP).
4. Completion and Advice: Transfers are tax-free at this stage, but future withdrawals follow standard rules. Financial advice is essential for transfer options, as external moves may lose guarantees.

Real-World Examples

To illustrate, consider these scenarios based on common UK cases:

• High-Value Defined Contribution Pension: Sarah and Tom, married for 15 years, divorce in 2025. Tom’s SIPP is valued at £300,000 (CETV), while Sarah has minimal savings. The court orders a 35% share to Sarah via PSO, creating a £105,000 pension credit. She transfers it externally to her own SIPP, gaining control over investments and drawdown timing. This clean break avoids future disputes, with Tom’s remaining £195,000 debited accordingly.
• Public Sector Defined Benefit Scheme: In an NHS pension case, Dr. Patel (aged 52) and his spouse agree to a 50% PSO after 20 years of marriage. The CETV is £250,000, but the scheme’s final salary guarantees mean an internal transfer preserves enhanced benefits like early retirement options for both. If external, the credit converts to a money purchase arrangement, potentially reducing security but offering flexibility.
• Offsetting vs. Sharing: For contrast, if a couple has a £200,000 house but unequal pensions (£150,000 vs. £50,000), they might offset: the lower-pension spouse gets a larger house share instead of a PSO. However, in 2025 guidance, sharing is recommended for longevity, as offsetting undervalues future growth.

These examples highlight how PSOs adapt to circumstances, with 2025 updates ensuring CETVs better account for inflation and returns.

Key Considerations for Divorcing Couples

While PSOs offer independence, watch for pitfalls: CETVs fluctuate, so final credits may differ from estimates; disqualifying credits (from pensions in payment) limit tax-free cash; and transfers impact lifetime allowances or protections. Women, often lower earners, benefit from sharing to boost retirement income, but early advice prevents losses like scheme guarantees. Always consult solicitors and IFAs—private agreements without orders are invalid.

How Caliber Financial Management Ltd Can Help

At Caliber Financial Management Ltd, we have vast experience providing advice on Pension Sharing Orders. Our qualified advisers recommend transfer vehicles to maximise growth and tax efficiency. We provide impartial, whole-of-market advice on pension options, ensuring compliance with 2025 regulations and helping you avoid common pitfalls like guarantee losses or tax traps. Whether you’re the pension holder or recipient, our expertise delivers peace of mind and optimal outcomes.

Book a free initial consultation with us today at contact@caliberfm.co.uk or call 01525 375286 to discuss how we can support your journey to financial independence.