How a financial planner can help clients with pension splitting during a divorce

Going through a divorce could be one of the most emotionally challenging experiences that your clients face.

They will likely have to reassess their goals and change their lifestyle, and this transition can be very daunting. Unfortunately, it often takes a toll on their finances too.

According to Legal & General, women are likely to experience a 33% drop in their income, while men see theirs drop by 18%.

Additionally, divorced couples lose some of the joint financial planning benefits that they enjoyed when they were married. As a result, it may be more difficult for your clients to reach their financial goals after separating from their spouse.

That’s why it’s so important that they reach a fair settlement and receive an equal share of the marital assets. Yet, many couples fail to consider one of their biggest assets during a divorce – their pensions.

Indeed, a survey from Which? revealed that 71% of divorcing couples did not include their pensions in their financial settlement.

Fortunately, working with a financial planner can help your clients ensure that they share this significant asset fairly, so both parties can continue effectively planning for retirement.

Read on to learn how a financial planner can help your clients with pension splitting during a divorce.

Your clients may undervalue their pension during a divorce

Typically, discussions about who keeps the family home or has custody of children dominate the negotiations during a divorce.

In many cases, couples decide not to split their pension savings and they may settle out of court by “offsetting” the value of the pension against another asset – usually the family home – instead.

This may seem like a beneficial choice for the person that keeps the home as it could be worth significantly more than a pension on paper.

However, your clients may be underestimating the true value of having a healthy pension fund earlier in life.

Clients who earn less than their spouse may have a smaller pension, meaning they were expecting to rely on their spouse’s savings in retirement. 

If they opt not to split their pensions, their ex-spouse will likely benefit from continued growth while they could fall behind with their own retirement savings. 

It can be difficult to catch up with their retirement savings later in life because they have less time to make contributions. Additionally, they do not benefit from potential growth on their savings for as long.

This could mean that it is more difficult to build their savings and they may have to make sacrifices to their lifestyle in retirement. 

Conversely, if they choose to split their pensions, they may be more likely to have adequate savings when they retire. As a result, they can potentially achieve the lifestyle they want in retirement.

Your clients have several options for pension sharing

If your clients decide that they want to share their pensions during a divorce, they have several options to consider. Understanding how pension sharing works and which method is best suited to their circumstances can be challenging.

Fortunately, a financial planner can talk them through their options and give some guidance, so they can make an informed decision.

The different options for pension sharing include:

  • A Pension Sharing Order (PSO) – The pension is split between the two parties and any money your client receives is treated as their own. They can choose to remain with the current pension provider or move the funds to a different provider.
  • A Pension Attachment Order (sometimes called “earmarking”) – Part or all of the pension is redirected to the other party when the pension is due for payment. This includes a tax-free lump sum. The main issue with this option is that your client can’t receive anything until their ex-spouse decides to draw an income from the pension.
  • Deferred lump sum – Both parties agree to split the pension at a later date.

As well as explaining how pension sharing works, a financial planner can help your clients ensure that they divide any pensions in the most tax-efficient way and avoid any unnecessary fees.

A financial planner can help your clients determine their retirement savings goals

Splitting pensions during a divorce may mean that clients can maintain their retirement savings. Yet, their retirement plan will likely change once they separate from their spouse.

Typically, couples plan together, and they will use their combined savings to fund their lifestyle. They may also have combined goals and it is likely that these will change after the divorce.

As such, it is important for your clients to reconsider their goals in later life and adjust their retirement plan accordingly.

A financial planner can work with divorced clients to determine what their ideal lifestyle in retirement looks like and what income they need to generate to achieve this. 

This allows them to give guidance about how to manage any funds that clients receive from split pensions.

Get in touch

If your clients are going through a divorce, we can support them and ensure they remain financially stable.

They can contact us at or call 01904 655 330. As an award-winning financial advice company that was a 2022 VouchedFor Top Rated firm, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

Get in touch

By talking about your current situation and listening to your aims, we create a personalised plan that will put you on a path to achieving your aspirations.

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