Introduction
The main purpose of pension sharing on UK divorce is to allow the members pension rights to be treated in the same way as the other matrimonial assets so that the spouse with no pension provision can now plan for their retirement. For a couple on divorce and nullity involved in ancillary relief the principles are set out in section 25 of the Matrimonial Causes Act 1973 (MCA 73).

This gives the court the power to resolve the matrimonial property and financial matters including the value of retirement benefits of any pension arrangements held between the parties where possible. Before pension sharing, the only solution for the division of the pension arrangements was by offsetting against other matrimonial assets held between the couple on divorce. The courts are directed to have regard to all the circumstances of the case and to seek a clean break between the parties. The MCA 73 has been amended to reflect the need of the former spouse to secure members pension rights on divorce, nullity or judicial separation, however pension sharing will only be possible on divorce and nullity of marriage.

Section 166 of the Pensions Act 1995 introduced earmarking and inserted sections 25B to 25D of the MCA 73. Earmarking provisions have not been used in England and Wales as it does not allow for a clean break of the retirement benefits. Matrimonial lawyers realised the limitations of earmarking and an enabling clause within section 16 of the Family Law Act 1996 (FLA 96) allowed for the concept of pension splitting.


New legislation
Further attempts to allow a clean break for a couple on divorce and achieve a fair division of the pension arrangements brought in by Welfare Reform and Pensions Act 1999 (WRPA). The Matrimonial Causes Act 1973 has been further amended by sections 19 and 21 of the WRPA that introduced pension sharing as well as making some improvements to earmarking.

The WRPA received Royal Assent on 11 November 1999 and applies to a members pension rights in divorce and nullity of marriage but not judicial separation and is a legally enforceable settlement from the 1 December 2000. From this date pension sharing allows occupational pension schemes such as final salary pensions, personal pension, stakeholder pensions and the state earnings related pension scheme (SERPS) to be divided between the parties. However, pension sharing will not apply to the state basic pension.


Achieving a clean break
Pension sharing allows the members rights to be divided between the parties so that a proportion, or the whole, of the retirement benefits can now be transferred from one spouse to the other as a final settlement of the financial matters.

The rights created by pension sharing as a result of an internal transfer or an external transfer will belong to the former spouse and there will be no dependence on the partner, as in the case of an earmarking order, resulting in a clean break of the financial matters. Pension sharing is only available to married couples and is not available to cohabiting couples applying to divorce and nullity of marriage only, unlike earmarking that includes divorce, nullity and judicial separation.

In many cases the spouse is nearing retirement and requires a pension income from either the internal or external transfer. Where this is a money purchase scheme, the spouse can use the pension fund to buy an annuity and has the option to use an open market option to search for the highest pension annuity. Once you have purchased an annuity it cannot be changed, so learn more about annuities, compare annuity rates and before making a decision at retirement, secure a personalised pension annuities quote offering guaranteed rates.

Pension sharing is not compulsory and it will still be possible for couples on divorce to select earmarking or offsetting as options where appropriate. Part III of the Welfare Reform and Pensions Act 1999 contains the new pension sharing framework that amends existing family law, specifically section 19 amends the Matrimonial Causes Act 1973 and allows the court in England and Wales to make a pension sharing order. Part IV deals with how pension sharing is effected and the result in relation to the pension arrangement and SERPS.

Although the MCA 73 contains the primary pension sharing legislation the detailed working of pension sharing can be found in subordinate legislation and implemented through statutory instruments. Here specific regulations for pension sharing detail the procedures, as in the step-by-step guide, to be followed for the provision of information, charging, calculation of the cash equivalent transfer value (CETV), creating a pension credit, producing a pension debit and procedures for a pension sharing order. Finally, the WRPA 99 repealed section 16 of the FLA 96 that introduced the concept of pension splitting.