Pension sharing on divorce: An essential step to protect your financial future

The first Monday of January marked Divorce Day, when solicitors typically report a rise in the number of couples initiating divorce proceedings.

If you’re going through a separation, there are likely many financial matters you need to deal with, such as paying for ongoing childcare and deciding how to share your marital home. However, there is one crucial yet often overlooked financial planning step you need to consider when divorcing, and that is pension sharing.

Pensions are often one of the most valuable assets a couple holds. However, the Standard has revealed that only 30% of divorcing couples include pensions in their divorce settlements. Unfortunately, failing to do so could jeopardise your long-term financial security – and that of any dependants you have.

Keep reading to find out why it’s so important to include a pension sharing arrangement in your divorce and discover three strategies for doing so.

Failing to include pensions in your divorce could lead to an unfair settlement

Pensions are often the most valuable shared asset after property. According to Forbes, in 2025, the average UK pension pot for a 55 to 64-year-old is £137,800, rising to £145,900 for those aged 65 to 74. Higher earners may have pension funds and benefits worth much more than this.

Ignoring this wealth when separating could leave one partner at a significant disadvantage later in life. This is typically the person who has a smaller or non-existent pension pot, which in the majority of cases is the woman. Indeed, the research published by the Standard found that women collectively lose out on up to £4 billion a year by neglecting pensions in their divorce.

There are several reasons why women may have less in their pension pots than men and are therefore disproportionately affected by a failure to share pensions on divorce, including:

• Women are more likely to take career breaks to care for children or other family members
• Divorcing women tend to prioritise keeping the family home over sharing pension wealth
• Women have longer average life expectancies, which increases their retirement income needs
• On average, women earn less than men (the gender pay gap)
• Women are more likely to work part-time.

In contrast, including pensions in your divorce could help you and your ex-partner achieve a settlement that’s fair to you both. What’s more, you’ll each walk away with certainty and financial independence, both of which are crucial for effective retirement planning.

If you feel guilty about claiming some of your ex-spouse or partner’s pension, remember that it is a shared asset like any other. While you might not have paid directly into your partner’s pension, you may have contributed to your household in other ways, such as caring for your children (allowing your partner to work and top up their retirement savings).

3 ways to share pensions on divorce

There are three main options to consider when deciding how to divide pensions on divorce.

1. A Pension Sharing Order

The courts can issue a Pension Sharing Order (PSO) as part of your financial settlement.

The PSO will state how the combined value of your pension assets should be divided between you and your ex-partner. This is given as a percentage, or if you live in Scotland, it will be stated as a fixed amount.

The portion you’re awarded – your “pension credit” – will be transferred from your ex-partner to you when the PSO is implemented. This typically happens within four months of the PSO becoming legally effective.

There is a fee for moving pension funds from your ex-spouse to you. The amount will depend on the type of pension you have and whether you decide to leave the funds with the same provider (if they allow this) or transfer them to a new scheme.

Pros

• Provides a clean break
• Will not be affected by future life events, such as remarriage.

Cons

• One person’s retirement income may fall
• Legal, court, and transfer fees could make this more expensive than alternative options.

2. Pension offsetting

Pension offsetting allows you and your ex-partner to keep your pensions as they are. You then take any disparity in the value of your pensions into account when dividing the other assets you share.

For example, you might agree to keep the family home in exchange for your ex-partner retaining their full pension, assuming these assets are of a similar value. As such, the value of your ex-partner’s pension is “offset” by the value of the property.

Pros

• It provides a clean break
• Offsetting can be used with overseas pensions, whereas a PSO can’t
• There’s no need for a court order, which could save time, stress, and expense.

Cons

• You could miss out on valuable pension income if you accept a short-term asset instead
• Valuing pensions and assets can be complex, making it hard to ensure the agreement is fair.

3. A Pension Attachment Order (Earmarking)

Earmarking allows you and your ex-partner to keep your pensions as they are. However, the court order will state that one of you must pay some or all of your pension to the other when it becomes payable.

In England, Wales, and Northern Ireland, you can choose to apply a Pension Attachment Order (PAO) to one or a combination of:

• Any tax-free lump sums you take
• Payments made if you die (death benefits)
• Pension benefits accrued after your divorce or dissolution.

In Scotland, you can only use earmarking to cover lump sum payments.

Pros

• While your earmarked benefits remain invested, they could grow over time.
• You won’t usually pay Income Tax on any earmarked pension benefits you receive, as this is payable by the scheme member (your ex-spouse).
• Your earmarked benefits are protected if your ex-partner transfers their pension in the future.

Cons

• You won’t have an immediate clean break.
• A PAO may no longer apply if certain life events occur, such as remarriage or death.
• You’ll only receive your earmarked benefits when your ex-partner chooses to access their pension.

As you can see, pension sharing on divorce is crucial for protecting your long-term financial security, but it is often complex. As such, you’d be wise to seek financial advice before choosing which strategy to use.

Get in touch

If you’d like assistance exploring the different pension sharing options available and how these might affect your future finances, we can help.

Our financial planners can use sophisticated cashflow modelling software to give you a clear picture of how each strategy could affect your retirement income.

To find out more, please get in touch.

Email helpme@aspirellp.co.uk or call 0117 9303510.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate cashflow planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.