What is pension offsetting?
Pension offsetting means each party uses the value of their pension to offset against other assets such as property. Pension offsetting could allow you to keep your pension, for example, while your former partner’s awarded a larger share of another asset such as your shared home.
How does pension offsetting work?
During divorce proceedings, all assets are taken into account, including pensions. If only one party has a pension, or a larger pension, rather than splitting this in a Pension Sharing Order, the value can be offset against other assets of the same or similar value. So, one party might keep their pension while the other gets the house or a larger share of other assets.
In the case of pension offsetting, the party with the pension will retain all of their pension rights, whereas the party without the pension must be prepared to give up any rights to a future claim on that pension.
What are the pros and cons of pension offsetting?
Pros of pension offsetting:
- Pension offsetting’s a relatively simple process that gives both parties a clean break
- Pension offsetting orders aren’t affected by remarriage or death
- Pension offsetting doesn’t require a court order
- In some cases when the pension’s small, pension offsetting’s more cost effective than a Pension Sharing Order
- If either party has an overseas pension, pension offsetting can be used whereas overseas pensions can’t be shared using a Pension Sharing Order in the UK.
Cons of pension offsetting:
- While one party might benefit from assets in the short-term, they could be left with little or no money for their retirement
- It can sometimes be hard to agree on a value of the pension as they fluctuate due to the nature of the investment type
- If the pension’s the largest asset, pension offsetting mightn’t be the easiest way to fairly divide assets
- The party who takes other assets rather than a share of the pension could lose any life insurance benefits from the other party’s pension.
If you’re going through a divorce or dissolving a civil partnership you should consider seeking legal advice to find out all of the options available to you.
In episode 14 of The Pension Confident Podcast, we discuss the impact your relationship status has on your finances, including what happens when you separate or divorce. Hear from the Founder of This Girl Talks Money; Ellie Austin-Williams, Barrister and Family Mediator; Paul Infield and Director (VP) Public Affairs at PensionBee; Becky O’Connor and listen to the episode, watch our guests in the studio or read the transcript now.
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.