If you get divorced, or dissolve your civil partnership, all your and your ex-partner’s assets are taken into account. This is known as pension attachment in England, Wales and Northern Ireland, and earmarking in Scotland.
What are pension attachment and earmarking orders?
A pension attachment or earmarking order redirects part or all of the consumer’s pension benefits to the ex-spouse or civil partner when it comes to be paid.
This doesn’t provide a clean break, as an ongoing link with your ex-spouse or civil partner will remain.
How does it work?
Pension attachment/earmarking allows the courts to make an order stating that part, or all, of the member’s pension benefits must be paid to their ex-partner when they become payable. This excludes the State Pension.
The pension still belongs to the scheme member, but the scheme must make some form of payment to the ex-partner when the member’s benefits become payable.
The court can order that the ex-partner receives one, or a combination, of the following benefits:
- all or part of the member’s pension income (this doesn’t apply in Scotland)
- all or part of the member’s tax-free cash sum
- all or part of any lump sum paid in when the member dies.
Taxable income payable to an ex-partner still belongs to the member, so will be taxed as if it’s being paid to the member.
Payments won’t count as taxable income for the ex-partner and shouldn’t need to be declared as income for tax purposes to HMRC.
Pros and cons
Here are some things to consider with this option:
Pros
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It allows for both the tax-free cash benefit and the pension income benefit to be earmarked.
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Death-in-service benefits can also be earmarked.
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If the member transfers pension rights, the earmarking order will follow the member’s rights to the new arrangement.
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The ex-partner will have some provision in retirement.
Cons
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It doesn’t allow a clean break between the divorced couple, and the couple might need to keep in touch for many years after the divorce/dissolution.
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There’s uncertainty about the eventual payment of the benefits. If the scheme member dies before retiring, or if the ex-partner marries or forms a civil partnership, any earmarking/attachment order (other than for lump sum death benefits) usually falls away.
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The earmarked payments don’t start being paid until the member retires. And there’s no particular date they have to start taking income. If the ex-partner is older than the member or if the member delays their retirement, this might have financial implications for the ex-partner.
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The payments stop on the member’s death, leaving the ex-partner without that income for the last years of their life.
Getting divorced and want to discuss your pensions options?
We can guide you through your options during a divorce. Someone from our pensions guidance team will talk to you about what you’ll need to think about, and where to get regulated advice if you need it.
Other things to be aware of
If the pension is already subject to an earmarking/attachment order from a previous divorce or dissolution, you’ll need to get professional legal advice specifically covering this issue.
When the member takes their benefits, these will be tested against the member's lifetime allowance.
So even though all or part of the benefits will later be paid to their ex-partner, there’s no lifetime allowance test on the ex-partner for the benefits they get from the earmarking/attachment order.
This might affect the member’s ability to build up enough pension provision for retirement.
Pension freedoms
Since April 2015, the way members can take their retirement benefits has become more flexible.
Earmarking/attachment orders that were issued before April 2015 might not reflect the pension freedoms, and so might not offer you the flexibility you’re expecting.
If this is the case for you, you’ll need to get legal advice. And you might need to go to court to get a variation on your earmarking or attachment order.
Any variation may need to be agreed by the scheme member and the ex-partner.
Reduced pension benefits
If your ex-partner member has a defined benefit pension, the income you get in retirement could be less than you expected it to be when the divorce or dissolution was finalised.
Their pension might be reduced if:
- they retire earlier than expected
- they reduced their salary, or
- the scheme entered the Pension Protection Fund (PPF). If your ex-partner's pension income is reduced, you'll also get a lower pension income.
If this happens, get legal advice as it might be possible to get a variation on the earmarking or attachment order.
