What happens to my NHS Pension when I get divorced?
When you go through a divorce or dissolution of a civil partnership, part of the process will involve the distribution of your assets. Many people don’t realise that pension assets are included in this.
It’s important to know what you’re entitled to and how pensions can be divided, as they’re typically one of the most high-value assets after the family home. If you have an NHS Pension it’s likely you’ve built up a healthy pot over the years, given it’s one of the most valuable pension schemes available.
If you’re settling things as a couple, you may decide to keep your own pensions as they are, share them equally or give one person more than the other.
If you go through a legal process, a court will often hold the view that both individuals involved should have a similar income in retirement. If you both have pensions of a similar value, then there may be no sharing order needed. In this case, you’ll likely keep your pensions as they are.
However, there are cases where a court will decide that one or more pensions should be shared. How they’re divided can be influenced by:
- How much you hold in each pension, especially if one person has significantly more than the other
- Any children under your care or other financial dependents
- Your individual financial situations
- Your ages or any pre-existing health conditions that affect your quality of life
- Your roles as part of your partnership. For example, if one of you sacrificed your career to be a stay-at-home parent
- How long you were together for
There are a few ways this can be decided. For example, through a Pension Sharing Order or Earmarking.
What is a Pension Sharing Order?
A Pension Sharing Order is one of the most common ways to lay out the terms for dividing any pension pots.
Let’s assume that you hold an NHS Pension with a higher value than your former partner. A Pension Sharing Order may determine that part of your pension will be used to create a pension benefit for them.
Your benefits will then be reduced, known as a Pension Debit, and your former partner will receive what’s known as a Pension Credit Benefit. They’ll then be allocated a unique Pension Credit Number in the Scheme to access their benefits.
NHS Pensions will calculate the benefit amount using the percentage share allocated by the court and factors based on the age and gender of your former partner.
What is the process of starting a Pension Sharing Order?
You’ll be asked to obtain a Cash Equivalent Transfer Value (CETV) of your pension benefits. A CETV is used to represent your fund value and will be calculated differently depending on where you live:
- Under English and Welsh law, your full Scheme membership will be counted
- Under Scottish law, only membership during the time you were married will be counted
It’s worth noting that you must have two or more years’ qualifying membership to be entitled to an NHS Pension. You’ll also have to fill out some forms, all of which can be acquired from the NHS website.
How does your stage of retirement affect the Pension Sharing Order?
The Pension Sharing Order will lay out the terms for how any pensions are shared, but when you retire, and where you live, can have an impact:
If an order is made before you retire:
- England and Wales
- Scotland
Your pension, lump sum and any adult dependants’ benefits are calculated at the effective date of the order. It's then increased in line with CPI up until retirement of the pension credit member.
The court will set out a percentage or monetary amount. When you retire, the Pension Debit will increase in line with cost of living and be deducted from your total pension benefits.
If an order is made during your retirement:
- If you’re already receiving your pension when the Order is created, your pension will be reduced by the chosen percentage and allocated to your former partner from the date of the Order.
- Any lump sum that you’ve received before the effective date of the Order is not affected.
How is the Pension Credit Benefit paid?
If it’s your pension being distributed, the Benefit will either be paid on the date the Pension Share Order was made or at the Normal Pension Age (NPA) of your Scheme, whichever is later. It doesn’t matter if you choose to retire at a different date.
For reference:
- In the 1995 Section, NPA is 60
- In the 2008 Section, NPA is 65
- In the 2015 Scheme, NPA is either age 65 or State Pension Age
As the Pension Credit Benefit is separate to your benefits, it will still stand even if you pass away or if your former partner remarries or enters a new civil partnership.
What is Earmarking?
Earmarking is a much rarer method of dividing pension benefits. Instead of a clear-cut approach, your pension remains your own and an attachment order is put into place. The order requires some of your pension payment to be paid as benefits to your former partner.
If you choose this approach, your former partner can receive one or more of the following:
- all, or part, of your NHS pension
- all, or part, of your retirement lump sum (if you have one)
- all, or part, of any lump sum payment paid when you die
- all, or part, of your NHS benefits bought by additional voluntary contributions
Benefit payment terms also differ for earmarking. For example, your former partner will only receive the earmarked amount when you retire.
Also, any order against pension payments will lapse if your former partner dies, remarries or enters a new civil partnership. In this instance, your full pension will be restored. It’s important to note that any lump sums will not be affected.
Tax implications on a shared pension
As the NHS Pension Scheme is registered with HMRC, your pension may be subject to income tax. This can include both the pension you receive and the benefits your former partner receives. Any tax will be taken from the pension at source, the same way earnings in a salary are.
Tax treatment depends on your individual circumstances and may be subject to change in the future.
Where can I find out more about the process?
For more information around the division of your NHS Pension, including how to apply for a CETV and any subsequent charges, you should visit the NHS BSA website. Here you’ll find all the relevant forms and informative documents.