If you are divorcing, a pension could be one of the most valuable assets that you will need to split. There are several ways that pensions can be divided when your marriage ends, and one option is a ‘pension attachment order’ – sometimes known as ‘earmarking’. But how does a pension attachment order work? Do you have to go to court to get one? And what are the pros and cons of a pension attachment order? Keep reading for answers to all your pension attachment order questions in this guide.
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What is a pension attachment order?
The process of ‘pension earmarking’ used to be available across the United Kingdom. Now, earmarking is only available in Scotland, and has been replaced by ‘pension attachment orders’ in England, Wales and Northern Ireland. Previous earmarking orders are still valid even though you can no longer obtain such an order outside Scotland.
When you divorce, all your property and assets are considered when a financial agreement is made. This includes any pension benefits. Under a pension attachment order, part or all of your retirement savings are paid to your ex-spouse when the time comes for you to take your pension benefits.
The court instructs your pension provider to make these payments to your ex-spouse when you start to draw your retirement benefits. You will continue to be the scheme holder, and your ex-spouse has no control over the investment of the funds or when you start drawing benefits.
A pension attachment order does not provide a financial clean break on divorce as you will retain a link to your former spouse for the period the pension is payable. In many cases this is the opposite of what a court seeks to achieve in a divorce case.
How does a pension attachment order work?
A pension attachment order requires a pension scheme provider to pay some or all of a members’ pension to their ex-spouse when they retire and begin to draw the benefits. This can be as a lump sum or as regular payments.
The process works by the court issuing an attachment order to the spouse’s pension scheme. This order requires the pension provider to pay a fixed portion of the member’s pension benefits directly to the ex-spouse. The attachment order can include the pension income or the tax-free lump sum.
The court can also order that part of the pension holder’s ‘death in service’ lump sum and widow/widower’s pension benefits are also paid, to protect the ex-spouse.
For example, a pension attachment order may be made to ensure an ex-spouse receives 40% of the member’s pension. This amount would be paid when the scheme member starts drawing their pension benefits. The court may decide to order a different percentage – say 50% – of the tax-free lump sum. This would also be paid when the scheme member starts to take their benefits.
How does the pension attachment order process work?
There is a process to follow when putting a pension attachment order in place.
- Complete form A: the form where you make your application for a financial order as part of the divorce process. This is where you essentially ‘apply’ for a pension attachment order.
- Get a valuation of the pension. This request is normally made by the pension scheme member within a week of notification of a financial divorce hearing (unless they can provide a pension valuation that is under 12 months old). The trustees of a pension scheme can normally help in providing such a valuation.
- Submit the application for a pension attachment order to the pension provider.
- The pension provider completes Form P and provide more information about issues such as underfunding and ill health.
- The parties serve a copy of the application for the consent order along with the pension attachment and draft order (and any other required information).
Note that changes to the law in 1999 mean that any pension attachment orders made after 1 December 2000 should be in percentage terms.
Do I have to go to court to obtain a pension attachment order?
Yes. While you and your spouse can agree ‘pension offsetting’ without going to court, you will have to go to court to obtain a pension attachment order.
It is not possible for you to use this type of arrangement without going to court. Even if you agree to the pension attachment – perhaps you have reached an agreement through your solicitors – you do need a financial order from the court to proceed with the pension attachment process. This can be done at the first appointment or during the financial dispute resolution stages.
Who has the responsibility of complying with a pension attachment order?
The responsibility to implement a pension attachment order generally sits with the trustees or managers of the pension scheme. They are normally required to pay any lump sum or income benefits directly to the ex-spouse when they become due.
If it is an occupational pension, the trustees of the pension scheme have to carry out any requirements of a pension attachment order.
For a personal pension, a stakeholder pension, a retirement annuity policy, a buyout contract or a policy assigned to a member from an occupational pension scheme, the provider should receive the attachment order. They are then responsible for making sure the order is complied with.
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What happens if the pension scheme member transfers the pension to another provider? Does the pension attachment order stay in place?
If you have a pension, then your right to transfer the pension to another provider is not affected if there is an attachment order in place.
When you transfer your pension to another scheme, the regulations state that the attachment order simply moves with the transfer. The order is then attached to the new scheme, as long as the ‘old’ scheme notifies your ex-spouse and the new scheme within 21 days.
Note that the attachment order will specifically mention a pension scheme, policy number and provider. Even though it is possible for you to transfer your pension, this paperwork is not altered in any way. This makes it important for the ‘new’ scheme to document exactly what the attachment order requires them to pay, particularly if other transfers are made to the same arrangement.
The scheme that you’re transferring your pension to has to examine the order and ensure that it can comply with its terms in relation to the type of arrangement your pension is being transferred to.
If you only transfer part of your pension, the regulations state that the attachment order will remain with the original pension scheme. The original scheme must notify your ex-spouse of what has happened and provide them with details of the ‘new’ scheme.
In rare cases, an order will need the consent of the ex-spouse before any pension is transferred to a new scheme.
What happens to the pension payments if the recipient of the attachment remarries or dies?
If a pension attachment order has been made, and the ex-spouse remarries or dies, the provisions of the order no longer apply. This means that any regular pension payments will no longer be made.
In terms of a pension lump sum, the provisions of a pension attachment order can remain if your ex-spouse remarries or dies. The terms of the order should be specific regarding this issue.
If your ex-spouse remarries they must notify the pension scheme managers or trustees within 14 days of this event. If your ex-spouse dies, their representatives must also notify the manager/trustee within 14 days.
What are the advantages of a pension attachment order?
There are some benefits of a pension attachment order, including:
- They offer way of including ‘death in service’ lump sum benefits under a pension arrangement
- This type of order can be made in judicial separation proceedings
- The pension benefits of the ex-spouse can grow if the scheme member continues to make contributions to the pension fund after the pension attachment order is made.
What are the disadvantages of a pension attachment order?
A pension attachment order fails to provide a ‘clean break’ on divorce, which is one of the main reasons why this type of arrangement is not commonly used. Courts like to take a ‘clean break’ approach to divorces and the provision of regular payments rather than a lump sum prevents this.
There are other disadvantages of a pension attachment order. These include:
- If your ex-spouse has a pension and dies before they reach retirement, you could receive nothing. If they die after they have started to draw their pension benefits your income will also stop.
- You won’t receive any pension benefits until your ex-spouse decides to start drawing their pension. If they delayed their retirement you may not receive any income when you need it.
- If your ex-spouse stops contributions to the pension scheme, or they decide to retire early, you may receive less than you expected.
- The ex-spouse has no control over how the pension fund is managed or over any investment decisions. The pension holder could invest in poorly-performing investments in order to reduce the value of the pension fund.
Note also that a pension attachment order can’t be made if there is a pension sharing order already attached to the pension. However, this only applies to the pension sharing order relating to the existing marriage, so you can apply a pension attachment order to a previous marriage that was subject to a pension sharing order.
What if the pension fund is taken as a lump sum? Do I lose my entitlement to my pension benefits?
If you have a pension attachment order in place that pays you a fixed proportion of the pension income, you should check whether you’ll still receive your correct award if the pension is taken as a lump sum.
You should ensure your rights are protected in the event that the scheme member withdraws their entire pension in cash. If they decide to do this, you may not receive the benefits to which you are entitled.
If the pension attachment order does not protect you from this outcome, you should take advice from a solicitor or pension specialist to establish whether it is possible to make a change to the order.
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