Pension Attachment Order: A guide

Lauren Gaines

Pensions are quite often valuable assets in a marriage. In some cases, they can be worth more than the family home. When it comes to a divorce, they are considered just as much an asset available for sharing as cash in a bank or property. The most common way that pensions are shared in a divorce is through a Pension Sharing Order. In this arrangement, a percentage of one person’s pension is transferred to the other, resulting in two separate and independent policies. Each person is then in full control of their own pension pot and can deal with it as they like.

Pension Attachment Orders are another method for dividing pensions during a divorce. While significantly less common than pension sharing, there are situations when a Pension Attachment Order may still be the preferred option.

What is a Pension Attachment Order?

A pension attachment order, also known as pension earmarking, is a legal arrangement that allows one spouse to receive a percentage of any benefits paid out from the other spouse’s pension, whether that may be a lump sum payment or income.

This is unlike pension sharing, where an immediate transfer of pension rights occurs. An attachment order keeps the pension in the original owner’s name until they start withdrawing funds. At that point, part of the pension gets redirected to their former spouse. This is the part of the pension that has been ‘earmarked.’

How do Pension Attachment Orders work?

Pension Attachment Orders can only be made by the court, either with the consent of both parties or ordered by a Judge as part of a Financial Remedy Order after a contested hearing. The Order sets out the percentage of the pension benefits to be paid to the ex-spouse and if applicable, any conditions or restrictions on when the payments can start.

The Order can be structured so that the ex-spouse receives one or more of the following benefits:

• All or part of the pension holder’s tax-free cash sum
• All or part of the pension holder’s monthly pension income
• All or part of any lump sum paid when the pension holder dies.

What are the advantages of a Pension Attachment Order?

• Earmarked funds: It allows for a share of the pension benefits to be earmarked for the benefit of a spouse without having to transfer any assets or create separate policies.
• Growth potential: If the pension continues to receive contributions, the value of the earmarked portion may increase over time, providing more significant benefits at retirement.
• Transferability: If the pension holder transfers their pension to another provider, the Attachment Order will typically move with it, keeping the arrangement intact.
• Death benefits: Earmarked savings can include any death-in-service benefits, providing additional financial support to the recipient.
• Tax benefits: Earmarked pensions are generally considered taxable income to the pension holder, exempting the recipient from declaring their share for tax purposes.

What are the disadvantages of a Pension Attachment Order?

• No clean break: It does not provide a clean break between the parties as there is still a financial link between them.
• Dependence: The receiving spouse has limited control over the pension’s performance and is reliant on decisions made by their ex-spouse regarding contributions and withdrawal timings. If the pension holder decides to retire early, for example, this may significantly decrease the funds that their former spouse expected to receive.
• Capable of change: the order is capable of being varied in the future which makes the receipt of benefits expected far less certain than a pension sharing order.
• Death: the death of either party will terminate the order.
• Marital changes: The recipient spouse will not get any income-related pension benefit if they remarry or enter a new civil partnership.

What if the pension is overseas?

While a Pension Sharing Order is the most common way to split UK-based pensions, they may not be appropriate for pensions held overseas. That is because not all countries allow for pension sharing. Even when they do, the process of dividing a foreign pension can be costly and time-consuming.

Since Pension Attachment Orders involve the original pension scheme remaining as it is, with no change in ownership, a pension scheme manager may be more willing to comply with a Pension Attachment Order compared to a Pension Sharing Order.

Every jurisdiction and pension scheme has its own rules, however. The international divorce solicitors at Osbornes are experienced in international divorces and assets that are held overseas. We can carry out the necessary investigations and advise you on the best way to proceed.

Is a Pension Attachment Order right for me?

Given the extensive issues around Pension Attachment Orders, it’s no surprise that they are used less often than the more popular Pension Sharing Orders.

However, which type of pension order is best for you will depend on your individual circumstances and objectives. Some may prefer the simplicity of setting up a pension earmarking order and the fact they (or their ex) can continue to manage the growth of their own pension fund until retirement.

It is always best to talk through the pros and cons of Pension Attachment Orders with an experienced divorce lawyer.

Expert advice on Pension Earmarking

If you’re considering Pension Attachment Orders or have questions about finances during your separation, we can help.

Our solicitors specialise in financial settlements, covering options for pensions when divorcing. We can give you clear, straightforward advice based on your situation and help you understand the different options available to you. To speak to us about pensions and divorce:

• Call 020 7485 8811. or
• Fill out the contact form below