Do I need a pension on divorce expert ?

Quick answer

It depends. You’ll probably benefit from expert input if either of you have Defined Benefit pensions, pension values over £100,000, if you’re considering offsetting, have significant age or State Pension differences or feel uncertainty about what a fair outcome really looks like. If these things don’t apply you might be able to take a ‘common sense’ approach without help, but it’s prudent to check, because people’s knowledge about pensions is often limited.

Introduction

If you’re reading this, you probably already realise that pensions should be considered as part of your divorce settlement. But not every pension situation needs expert involvement.

The difficulty is that pensions can look simple when they are not. A value from a provider, or broad agreement between you, does not always show the full picture. Unlike bank accounts, pensions can involve future income, tax, inflation protection, scheme rules, retirement ages and benefits that are not obvious from the paperwork.

When is PODE involvement beneficial?

Expert input will be most valuable where one or more of the following apply.

1. Pension values are significant

The Pensions Advisory Group guidance recommends considering a PODE report where combined pension values are £100,000 or more.

That does not mean every case below that figure is simple, or every case above it is automatically complex. But once pensions are worth six figures, the cost of getting the analysis wrong can be much greater than the cost of getting expert input.

2. Either party has a Defined Benefit pension

Defined Benefit pensions include many NHS, teachers’, civil service, police, fire service, armed forces, local government, final salary and career average schemes.

These pensions are often especially important because they are promises of income, not simple pots of money. The Cash Equivalent Value, or CEV, which pension providers give you, may not reflect the true value of the benefits in the context of divorce.

If one person has a Defined Benefit pension and the other does not, a simple 50/50 split of the headline pension values may produce a very uneven retirement outcome.

3. You are considering offsetting

Offsetting means one person keeps more pension value while the other keeps more of another asset, often equity in property.

That can be the right solution, but it is also one of the areas where it’s easy to make a mistake. Pension income in the future is not the same as property equity today. A PODE can help test what is actually being exchanged and whether the proposed trade-off is fair.

4. One or both of you are aged 50 or over

As retirement gets closer, pensions usually become more central to the settlement. There may be less time to rebuild pension savings after divorce, and decisions made now can have a more immediate impact on retirement income. A PODE will factor in this imperative when assessing sharing options.

5. There is a significant age gap

A fair pension outcome may look different where there is a meaningful age gap between the parties. Retirement dates, life expectancy, investment timeframes and income needs can all affect what a fair division looks like.

A PODE can model those differences rather than assuming both people are in the same pension position.

6. State Pension differences matter

State Pension entitlement is often overlooked because it may not appear in the same way as a workplace or private pension. But differences in State Pension entitlement can have a real impact on long-term retirement income.

Where one person has gaps in National Insurance history, caring responsibilities, lower earnings or have had time out of work, this may need to be considered alongside other pension assets.

7. You want a settlement that is robust

A PODE report is prepared with the depth of analysis expected by lawyers and courts. Even if you are not going to a final hearing, that can be valuable in mediation, collaborative discussions, solicitor negotiations or direct discussions and results in a robust settlement which will help deliver long-term fairness for both parties.

What might happen without a PODE?

Skipping PODE involvement can feel like a way to save cost and keep things simple. If your pension situation is straightforward that may be true. But where pensions are material or complex, not getting expert input can cause problems such as:

• Pensions being undervalued or ignored

• Defined Benefit pensions being treated like ordinary savings pots

• A 50/50 split of values producing unequal retirement income

• Offsetting figures being based on rough assumptions

• Tax, inflation or survivor benefits being missed

• State Pension differences being overlooked

The bottom line

The cost of getting pensions wrong is not always obvious immediately. It may show up years later as a permanent shortfall in retirement income. If your situation is genuinely simple and there is agreement between you, a common sense approach is best, but if your pensions are of a particular type, value or complexity, then not getting expert input might be a false economy.

What to do next

If you’d like some more clarity about your personal need for a pension expert, our free assessment will help you identify whether PODE analysis is likely to be beneficial for you.

FAQs

• My pension provider has told me what my pension is worth, is this reliable?

  Not always. A provider’s value can be a useful starting point, but it may not show what the pension is really worth in the context of divorce. This is especially true for Defined Benefit pensions, where the value may not reflect the long-term income, inflation protection or scheme benefits being given up or shared.

• Is it risky to trade pension value for more of the house?

  It can be. Property equity today is not the same as pension income in retirement, so a simple trade-off can create an unfair outcome even if the headline numbers look reasonable. A PODE can help test whether the exchange is fair in long-term retirement terms.

• Does a PODE tell the court what the settlement should be?

  No. A PODE does not decide the overall financial settlement or tell the court what outcome to order. The report provides pension analysis and evidence so that the parties, advisers or court can make better-informed decisions.

• Is a PODE the same as a financial adviser?

  No. A PODE analyses pensions specifically for the purpose of divorce, including pension sharing and offsetting options. A financial adviser helps with personal financial planning, investment choices and what to do with pension assets after the divorce. We can assist with financial advice once your pension share is concluded.