Pensions in mediation
Pensions can often be a significant financial asset.
There are two main categories of occupational pension schemes. The gold standard is the final salary or defined benefit plan. The amount of money employees get in retirement depends on their salary during their working life. This pension is not affected by stock market fluctuations. With money purchase schemes the amount employees will have on retirement depends on how the investments in the pension fund have performed.
Personal and Stakeholder Pensions
The potential pensioner does not have to be an employee to take out a personal or stakeholder pension. Self employed people can also have these. As with money purchase plans, the amount received in retirement will depend on how well the fund has performed over the years.
In mediation some couples prioritise what will happen to the value of the family home but ignore the value of the pension which in some cases may be worth more.
It will be necessary to get all pensions valued for mediation even if they have been frozen or have little value. This means contacting the pension scheme manager, or the personal pension company in writing requesting a written Transfer Value.
Since 2000 pensions can be divided at the time of the divorce through Pension Sharing Orders. There are other options that might also be considered in mediation.
Pension offsetting - with this method the value of the pension fund is offset against other assets of the marriage such as house, savings or other investments.
Pension attachment - part of the pension fund, both the lump sum taken at retirement and the income is set aside for one spouse to take when the other spouse retires. The disadvantage of attachment is that if the pension scheme member or policy holder dies before he or she reaches retirement then the entitlement also ceases. The same would apply if the former spouse wished to remarry as the entitlement to pension attachment would end at that point.
Pension Sharing
The pension fund is divided at the time of divorce. If the spouse with the pension is a member of a company scheme, then the other spouse may be admitted as a member in his or her own right, but this varies from employer to employer. Most commonly spouses receive money from the scheme to take away to put into their own pension scheme.
Pension sharing is not always appropriate; for example if the couple in mediation are young or if the marriage has been a short one. It can be expensive to set up a Pension Sharing Order so it will not be appropriate if the value of the pension is relatively small. Instead one spouse can pay the other maintenance or pay a lump sum of money to satisfy a claim to a share of the pension.