Guide Pension Sharing

Pension sharing can apply to all types of private pension arrangement, occupational and personal, registered and non-registered as well as to pensions already in payment. State pensions can be shared in certain circumstances depending on when divorce proceedings begin and on the State pension entitlements accrued. More detailed information can be found at:

For pension sharing, the prescribed valuation method is the cash equivalent transfer value (CETV). However, in certain circumstances, one of the parties may argue for a different value to be used.

There are two different types of valuation for pension sharing. An information valuation is used by the court and the divorcing parties to help decide on how to share assets. An implementation valuation is used when a pension sharing order has been made and all the requirements to make the transfer from one pension arrangement to another have been received by the member’s pension scheme administrator/trustees. 

In Scotland, only the value of the pension which has been built up during the period of the marriage or civil partnership up to the date of separation (or the date the court summons is served) is taken into account. The solicitors acting for the parties will calculate this as part of the divorce settlement.

There are set timescales for providing valuations and information relating to the pension sharing process. 

In England and Wales, a pension sharing order must be issued by the court and should be accompanied by a prescribed pension sharing annex (Form P1) for each pension arrangement that is to be shared. An annex should quote, amongst other things, the provider’s name, the reference number of the pension arrangement being shared, and the percentage of the arrangement that the ex-spouse or ex-civil partner is to receive.

In Scotland, pension sharing can be achieved either through a pension sharing order made by the court or a corresponding provision in a 'qualifying agreement'. A qualifying agreement (which is the more common method) is a written financial agreement between the two parties which is usually drawn up by their legal advisers, that is recorded in a government register called the ‘Books of Council and Session’. Both an order and an agreement will contain an annex which should quote, amongst other things, the provider’s name, the reference number of the pension arrangement being shared, and the percentage of the arrangement or the cash amount from the arrangement that the ex-spouse or ex-civil partner is to receive.

An order or agreement should not quote the date the share is to be made on as this date is determined by the scheme administrator/trustees of the member’s scheme. Note that, in England and Wales, the pension sharing annex must show the amount to be shared as a percentage. The annex should not, for example, say ‘such percentage of the fund as equals £35,000’. In Scotland, the annex can show a percentage or a monetary amount.

All private sector occupational pension schemes and personal pension schemes must offer the option of transferring the pension credit externally to an arrangement chosen by the ex-spouse or ex-civil partner. Most scheme administrators and trustees will prefer this option. This may mean the ex-spouse or ex-civil partner choosing between transferring their share into a new arrangement (such as a personal pension) or transferring the pension credit into an arrangement or scheme that they are already a member of. As the pension credit forms part – or perhaps all - of the ex-spouse/ex-civil partner’s pension savings, it’s their age which determines when benefits can be taken, not the age of the member whose pension fund has been shared. So, a 52-year-old member whose fund was shared with her 56-year-old ex-husband couldn’t take benefits but her ex-husband could as he’s over the current minimum pension age of 55.

At their discretion, scheme trustees may offer an ex-spouse or ex-civil partner their own benefits within the member’s scheme as an alternative although this is unlikely to be the preferred option. From the ex-spouse’s or ex-civil partner’s point of view it may not feel like a ‘clean break’ if they become a member of their ex-partner’s pension scheme.

The only schemes that have to offer an ex-spouse or ex-civil partner membership in the member’s scheme are unfunded public sector schemes or final salary schemes which are not fully funded. In the case of the latter, if the ex-spouse or ex-civil partner chooses an external transfer instead, their pension credit is likely to be reduced to reflect the extent of the shortfall in funding.

A pension credit is not treated as a contribution against the annual allowance for the ex-spouse or ex-civil partner.

When they receive a pension sharing order, the scheme administrator/trustees have 21 days to:

• issue a notice of implementation, or
• explain why they cannot proceed with the implementation and ask for further details, or
• where there are charges (and it has previously been specified that they must be paid before the order is implemented) ask for payment to be made first.

Once they have received all the information required and any requested payment, they must implement the order within four months. Note that for Scottish cases the scheme administrator/trustees must receive all information and documents within two months from the date of the extract of the decree or other judicial declaration responsible for the divorce, otherwise the order or agreement will be deemed never to have taken place. However, an application can be made to the Court to extend this two-month period, even where it has already expired.

In prescribed circumstances, occupational pension scheme trustees or managers may apply to the Pensions Regulator for an extension to the implementation period. For example, if the scheme is being wound-up or if the financial interests of the scheme member will be prejudiced if the order is complied with within the implementation period.

Once a pension share has been completed, notifications must be issued to the scheme member and to their ex-spouse or ex-civil partner within 21 days of the transfer. These notifications must contain prescribed information. 

Where a member has a protected tax-free lump sum of more than 25% and their pension arrangement is subject to a pension share, the protected tax-free lump sum is not reduced as a result of the pension debit.

One issue to watch out for is where the value of the fund after the pension debit falls below the amount of the protected tax-free lump sum. Unless the protected tax-free lump sum was a stand-alone lump sum, then it would not be possible to take the whole of the fund as a lump sum. HM Revenue & Customs’ (HMRC) stance is that some part of the fund must be used to provide a pension on the basis that when you pay a pension commencement lump sum (PCLS) you must also provide a pension or drawdown. However, it may be possible to pay the amount that’s been set aside to provide a pension or income as a trivial lump sum, provided certain conditions are met. These include –

• The amount of the lump sum is no more than £10,000
• It’s paid no more than one month after the related protected tax-free lump sum
• The member has some lump sum and death benefit allowance available after the payment of the related protected tax-free lump sum

The payment of the trivial lump sum is not a relevant benefit crystallisation event (RBCE).

If a pension debit is made from an arrangement that could be paid as a stand-alone lump sum, the remaining fund can still be paid as a stand-alone lump sum to the member.

An ex-spouse or ex-civil partner who receives a pension credit does not benefit from any protected tax-free lump sum or stand-alone lump sum that applied to the member’s funds. In other words, an ex-spouse or ex-civil partner would be limited to a maximum of 25% as a tax-free lump sum from a pension credit that originated from uncrystallised funds.

A pension credit made from a pension in payment is a ‘disqualifying pension credit’.  

Where an annuity is to be shared with the ex-spouse or ex-civil partner, the original annuity will need to be ‘unbought’ and a current value placed on it. Depending on the scheme administrator’s/trustees’ decision, the current state of health of the annuitant may be taken into account as their situation may have changed significantly since the original annuity was calculated.

When pension sharing goes ahead, the ex-spouse or ex-civil partner will generally transfer the pension credit to a pension arrangement in their own name. Whether benefits from the pension credit can come into payment immediately will depend on the ex-spouse’s/ex-civil partner’s age. The fact that the original member was already in receipt of a pension doesn’t matter - the pension credit can only come into payment if the ex-spouse/ex-civil partner has reached normal minimum pension age (currently 55) or has met the ill-health condition.

The money purchase annual allowance isn’t triggered if an ex-spouse/ex-civil partner starts to take income from a flexi-access drawdown fund that is wholly derived from a disqualifying pension credit.

It is assumed that a tax-free lump sum would have been paid to the original member when the fund being shared was first crystallised. This means that the ex-spouse or ex-civil partner can’t receive a tax-free lump sum when they take benefits from the pension credit.

It's not possible to take an uncrystallised funds pension lump sum (UFPLS) from an arrangement that has a disqualifying pension credit.

Members in capped drawdown should be aware that any pension debit could have a significant impact on the maximum income that they can take.

If someone is under age 75 and their fund reduces following a pension debit, then there should be a review of the maximum income limit for the remaining years of the review period. The income limit should be recalculated on the day the pension sharing order takes effect using the remaining capped drawdown fund and the individual’s age at that time. However, the reduced maximum income limit does not take effect until the start of the next pension year in the review period.

It follows that a review of the income limit would not be carried out if the pension debit is made in the final pension year of the review period. In this scenario, the income limit would be reviewed as normal once the review period has expired. Similarly, if a pension debit is made from a fund belonging to someone aged 75 or over, then the income limit would need to be reviewed as normal on the next annual review date. 

A foreign court has no jurisdiction to make a pension sharing order against a UK pension arrangement. If a couple are getting divorced overseas and they wish to share the benefits held under a UK pension arrangement, they need to obtain a pension sharing order from a UK court. The relevant court order would need to be made under Part III of the Matrimonial and Family Proceedings Act 1984 (or the equivalent Scottish legislation) and follow the usual format of a UK court order, quoting the UK plan number and the relevant percentage (or, in Scotland only, the amount) to be shared.

If the ex-spouse or ex-civil partner is living overseas at the time of the divorce, they may have difficulty finding a UK provider who will accept the pension credit as some are authorised only to do business with UK residents. An alternative option could be to transfer the pension credit direct to a qualifying recognised overseas pension scheme (QROPS). 

The two scenarios that could occur are:

• The member dies after the court order has been finalised but before the pension share is implemented – generally the pension credit is deemed to exist and the transfer to a pension arrangement for the ex-spouse or ex-civil partner should continue to be processed.
• The ex-spouse or ex-civil partner dies after the court order has been finalised but before the pension share is implemented – generally, the ex-spouse or ex-civil partner will be treated as having benefits within the member’s scheme. Death benefits would then be quoted and settled based on the rules of the scheme or contract. 

Pension debits

A member of a registered pension scheme will see the value of their pension savings reduce following a pension debit. Subject to the normal restrictions on tax relief, the member can pay contributions to make up the shortfall in their benefits caused by the pension debit. Anyone with an existing fund protection will also need to take into account the effect a pension debit may have. This is covered in more detail below.

Pension credits

Individuals receiving a pension credit can be affected in a variety of ways:

1. The ex-spouse or ex-civil partner does not have any fund protection on their pension benefits prior to receipt of the pension credit. The addition of the pension credit could reduce scope for future pension funding by the ex-spouse or ex-civil partner or could push the value of their benefits above the lifetime allowance.
2. The ex-spouse or ex-civil partner has primary protection, individual protection 2014 or individual protection 2016 on their pension benefits prior to receipt of the pension credit. No increase in the personal lifetime allowance can be made with the addition of the pension credit. So, the total value of the increased benefits would be tested against the ex-spouse’s or ex-civil partner’s lifetime allowance.
3. The ex-spouse or ex-civil partner has enhanced protection, fixed protection 2012, fixed protection 2014 or fixed protection 2016. The addition of the pension credit would not result in the loss of fund protection whether applied to an existing or new money purchase arrangement where the protection was held by the individual on 15/03/2023. If the protection was granted after 15/03/2023, that protection would be lost if the pension credit was put into a new money purchase arrangement for the ex-spouse or ex-civil partner.
4. The ex-spouse or ex-civil partner receives a pension credit that has arisen in whole or in part from a pension which has come into payment on or after 6 April 2006. It is possible in this situation for the ex-spouse or ex-civil partner to apply to HMRC for an enhancement to their lifetime allowance. The reasoning behind this is that there will already have been a test against the member’s lifetime allowance when benefits came into payment. The application for an enhancement factor to HMRC must be made within five years of the 31 January following the end of the tax year in which the pension credit is received. This enhancement can be applied for using the HMRC online form APSS201.

Pension credit received before 6 April 2006

For pension credits received before 6 April 2006, it was possible for an ex-spouse or ex-civil partner to register for an enhanced lifetime allowance (called a ‘pre-commencement pension credit factor'). If this was granted, it allowed an ex-spouse or ex-civil partner to take benefits up to the value of the pension credit plus their own lifetime allowance (LTA) without having to pay an LTA charge – in effect, it gives the ex-spouse a personal LTA that is higher than the standard LTA.

The LTA charge was abolished from 6 April 2023, and for the 2023/24 tax year, benefits paid in excess of an individual’s LTA were subject to income tax at marginal rate. An individual with a pre-commencement pension credit factor would only pay tax at marginal rate if the total benefits paid exceeded their higher personal LTA. 

An application to benefit from this enhanced lifetime allowance had to be made to HMRC by 5 April 2009. The enhancement factor would have been calculated using the lifetime allowance of £1.5 million from 2006/07.

Note that the enhancement could not have been applied for if the ex-spouse or ex-civil partner had registered for primary protection.

Pension credit received from a pension in payment, on or after 6 April 2006

Anyone who receives a pension credit on or after 6 April 2006 must count its value against their own lifetime allowance, unless it’s been paid from a pension that’s already in payment (as in point 4 above) and the individual applies for an enhancement factor.

While the tax charge for exceeding the lifetime allowance was abolished from 6 April 2023, an LTA test still had to be performed if benefits were taken in the 2023/24 tax year.  The effect of the enhancement factor is to give the individual a higher personal LTA, so they will only pay tax if their benefits exceed this higher amount.

No pension credit factor:

From 6 April 2024, pension credit benefits are included in the value of an individual’s own pension savings, therefore if an individual has benefits that exceed their remaining lump sum allowance (LSA) and/or lump sum and death benefit allowance (LSDBA) at a future relevant benefit crystallisation event (RBCE), the excess will be subject to tax at the individual’s marginal rate.

With a pension credit factor:

To qualify for a pension credit factor the following conditions need to be met:

• The pension credit was acquired between 6 April 2006 and 5 April 2024, and
• It is derived from a pension that was in payment to the original member at the time of the sharing order, and
• The original member became entitled to that pension on or after 6 April 2006, and
• A notice of intention to rely on this factor is supplied to HMRC.

You can find out more about how a pension credit factor is calculated, and how it affects an individual's LSDBA if granted, using the buttons below

A member who has primary, enhanced, fixed (either 2012, 2014 or 2016) or individual protection (2014 or 2016) may later divorce and, under a pension sharing order, share their pension with their ex-spouse or ex-civil partner. It will depend on what type of fund protection is held as to what happens to the remaining benefits after a pension debit has been made.

Enhanced protection, fixed protection 2012, fixed protection 2014 and fixed protection 2016

A deduction for a pension debit will not result in the loss of the enhanced or fixed protection and the remaining benefits will continue to be protected. If an individual who applied for protection after 15/03/2023 decides to make further pension savings to build up their funds again after the pension debit, the enhanced or fixed protection would be lost. An individual who held enhanced or fixed protection on 15/03/2023 would not lose their protection if they decided to make further pension contributions from 6 April 2023. 

Primary protection, individual protection 2014 and individual protection 2016

The value of the protected benefits will have to be recalculated as a result of the pension debit. A scheme member should notify HMRC when they become subject to a pension debit and this could result in their personal lifetime allowance being re-calculated or in the primary protection or individual protection being lost (if the remaining personal lifetime allowance goes below £1.5m for primary protection, £1.25m for individual protection 2014 or £1m for individual protection 2016). 

There is HMRC guidance covering the general principles of pension sharing at: