Assuming she can find suitable accommodation, from Ellen’s perspective, this option is likely to be attractive as she would retain the full value of her pension rights, which in the event of her death could pass to her surviving children.
The downside for Portia is that she would have little in the way of pension savings and given her age, lack of other assets and ability to contribute at the necessary level, it may prove difficult to build up sufficient pension funds for a comfortable retirement.
Earmarking
This was introduced by the Pensions Act 1995 and involves a court order directing the trustees of a pension scheme to make payments to an ex-spouse from the date the member draws benefits.
All or part of the benefits of one of the divorcing parties are paid to the other party.
Orders may be made against a member’s lump sum on death and/or retirement. The crucial point is that the benefits remain in the member’s name.
With our example, from Portia’s perspective, it is difficult to see any attraction using this option. It does appear to address her lack of pension rights and may be advocated by her wife Ellen if the pension scheme does not have readily realisable assets.
However, Portia would not receive benefits until ex-wife Ellen decided to take hers, and their respective plans may differ.
Unless death benefits have been included in the order, she would receive no benefits if Ellen pre-deceased her.
In addition, any retirement benefits would be lost if she remarries. These issues indicate a lack of control, and this is further exacerbated by Ellen making any investment decisions (the divorcing parties’ attitudes to risk may not coincide).
If the divorce has been acrimonious, Ellen could also opt-out of the pension scheme and fund for her retirement using a non-pension method to the detriment of Portia’s retirement planning.
There is no clean break under this option, and it is hard to see it holding much attraction for either party.
Sharing
Introduced by the Welfare Reform and Pensions Act 1999, this necessitates the creation of a pension credit for one party, and a corresponding pension debit for the other as the holder of the pension rights.
The creation of this is achieved through a court order or by agreement between the divorcing couple (Scotland only).
Giving effect to a pension credit involves the setting up of benefits for the ex-spouse under the member’s scheme or under a scheme of ex-spouse’s choice. The option(s) for the pension credit will be dictated by the member’s scheme.
For Portia, this option would be attractive in that she currently has negligible pension savings and would acquire a level of pension rights that might be difficult to replicate given her period to retirement.
