Should you include or exclude State Pensions in your PODE report?
A Nuanced Guide to State Pensions on Divorce
When it comes to dividing pensions on divorce, most people focus on workplace or private pensions. The State Pension can feel like an irrelevance. It can’t usually be shared under a Pension Sharing Order, and the figures involved can look small compared to a large defined benefit scheme.
So, should you even bother including State Pensions in your PODE instruction? The answer isn’t always straightforward. Here’s what you need to know.
Why the State Pension matters
It’s guaranteed income: Unlike private pensions, the State Pension isn’t subject to investment risk. It’s secure, inflation-linked, and payable for life.
It makes up a big chunk of retirement income: For many people, the full State Pension is worth over £11,000 a year. Over a typical retirement, that’s equivalent to a six-figure pension pot.
Disparities can be real: If one spouse has gaps in their National Insurance (NI) record, their State Pension can be much lower. This especially affects people who took time out of work to raise children or care for other family members.
When to include the State Pension
You should usually include it if:
There is a material difference between the parties’ NI records.
One party may not achieve a full entitlement before State Pension Age.
The income equalisation exercise needs to reflect all real sources of retirement income ( Doesn’t seem to fit grammatically?)
You want a complete report which may be needed for court or negotiation purposes.
In these cases, the PODE may capitalise the State Pension into today’s money values (using actuarial tables or current annuity rates) so it sits alongside other pensions in the calculations.
When to narrate without capitalising
There are also situations where it’s fairer and more proportionate to explain the State Pension, but not attribute a capital value. Examples include:
Both parties are on track for the full New State Pension – no meaningful difference to model.
The only “gap” is age-related – one party is younger and hasn’t yet clocked up 35 years, but is very likely to do so.
The court instruction is narrowly focused on occupational and private pensions only.
The difference is so small it wouldn’t affect the sharing percentage.
In those cases, the PODE will still describe the State Pension entitlements in the narrative, to ensure transparency, but won’t let it skew the equalisation figures.
Tackling “unfair” temporary gaps
A common frustration arises when the younger party has not yet built up enough NI years, so their forecast looks lower today. Most experts will either:
Assume they will achieve full entitlement by retirement, or
Show a sensitivity analysis with and without full accrual, explaining why the higher figure is more realistic.
This avoids penalising someone simply for being younger.
The Bottom Line
The State Pension should never be ignored. It always needs consideration but doesn’t always need ut it doesn’t always need to be capitalised. A good PODE report will:
Clearly set out each party’s State Pension entitlement,
Decide fairly whether to capitalise or narrate, based on materiality and instructions,
And, where relevant, explain how different assumptions might affect the outcome.
That way, everyone (clients, solicitors, and the court) can see the full picture, without unnecessary complexity.