Ex-tras: Why pensions on divorce matter

Did you know your pension could be one of the most valuable assets in your divorce settlement – even if it doesn't look that way right now?

In this bitesize ex-tras episode, we unpack everything you need to know about pensions on divorce. From understanding the difference between defined benefit and defined contribution schemes, to knowing when to get specialist guidance, this episode helps you approach your financial settlement with more confidence.

Only have a few minutes? This is a short, focused listen designed to fit into a busy day. Available exclusively for amicable space members.

Transcript

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Welcome to Amicable Extras, the bonus feed from the team behind the Divorce Podcast. This is your space for deeper dives, extra stories, and honest answers to questions you didn't know you could ask. Each episode features behind-the-scenes insights, extended interviews, and expert answers to your most burning questions about separation, co-parenting, dating after divorce, and everything in between. Because sometimes it's the extras that matter most. Hello, today in this exclusive extras bite-sized episode, I'll unpack pensions on divorce and what role they play in your financial settlement. Pensions are often one of the most valuable assets you can hold, and yet they're one of the least understood parts of the financial picture. It's important to remember that a pension, even though it's called a personal pension, is still a marital asset. And pensions are part of the overall financial settlement and should be considered alongside property, savings, and income, just the way any other asset would be. The aim in a divorce settlement is to reach a fair outcome. And that may involve sharing a pension and balancing it out potentially against other assets. The danger when you're looking at pensions is that you don't really understand the value of a pension. It might actually be quite small or look quite small at the time of dividing assets, especially compared to, say, a property which might on paper look like it's a much more valuable asset. But the thing about pensions is they compound over time and to a much greater degree than many other assets, even property. So although a pension might look small when you're dividing it at the time of a divorce, 10, 15, 20, 30 years later, it can be a much more valuable asset than even, say, a property. Because pensions are complex, it's important to properly understand the value before making decisions about how you're going to split things. And that means getting hold of the value of a pension. And that's often contained in a value called a CEV or a CETV. And that's a cash equivalent transfer value. Now, this is often different to the fund value, particularly if you've got what's called a final salary scheme. So if you're a teacher or you work in the NHS or for the local authority or for the armed services, you may well have a defined benefit or final salary scheme pension. And the CEV in those cases is often understated. So it the pension looks like it's worthless than it actually is. The other type of pension you can have is what's called a defined contribution pension. And these usually have a more realistic value compared to the number that you'll get from a CETV or a CEV. The difficulty comes if one of you's got a defined benefit or a final salary scheme and the other one's got a defined contribution scheme. It can then get very complicated very quickly about what the real value of those pensions are and how, therefore, you split them in a fair way. So if that's the case, the recommendation is you get a pensions on divorce report. So a specialist can work out what the true value of those pensions are and can help you decide what's the most economical or efficient way of splitting those pensions so you get the outcome that you're looking for. Now you can split pensions based on their value, or you can split pensions based on the income they will provide. And these can be different figures. And just splitting a pension in half doesn't guarantee that you'll both get the same income out of that pension. So it is important to get some advice and to make sure you really do understand what you're splitting and how you're splitting it. So the key things to take away are pensions need to be involved in a settlement. Just because they say personal doesn't mean they're not marital assets. Make sure that you don't look at the pension in isolation. Consider it as part of the full financial picture. Think long-term, not just what the immediate needs are and what the value of the pension is here and now. It will compound over time and become a lot more valuable. And ask lots of questions and seek expert guidance if you're not sure about some of the terminology or some of the things that are being suggested as part of what might be fair and reasonable. Most importantly, don't ignore pensions. They are complicated, but understanding them early on in the process can make a big difference to the fairness in your settlement and also how life will feel when you come to being, you know, 50, 60 plus and you're looking at the income a pension will generate for you. Hope that was useful. Don't forget, we're here to answer your burning questions. So please ask away via the forum, and me and my expert guests will do our very best to get the answers to you. Thank you everyone for listening. See you next time.