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Pension Sharing vs Pension Offsetting – The Key Differences

In this article, we'll outline the two most common approaches for dividing pensions in a divorce, known as pension sharing and pension offsetting and help you understand which option is right for you.

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    Pension Sharing vs Pension Offsetting: Benefits and Drawbacks Explained

    Pensions are an essential part of retirement planning, and they can be a valuable asset for couples. However, when a couple decides to separate or divorce, dividing their pension can be a complex and challenging process.

    Couples who are dividing pensions should ask, what option is right for me, pension sharing vs pension offsetting?

    Both methods have their benefits and drawbacks, and it is essential to understand them to make an informed decision.

    There is a third less common mechanism to separate pensions, known as pension attachment (earmarking in Scotland). However, this article focuses on the two more common approaches for splitting pensions in a divorce.

    Understanding the benefits and drawbacks of pension sharing and pension offsetting is crucial when deciding how to divide pensions.

    Pension Sharing Explained

    The process by which a divorcing couple divides their pension assets is known as pension sharing. It involves transferring a portion of one spouse’s pension to the other spouse.

    The spouse who receives the pension becomes the owner of that portion of the pension and can decide how to invest it or access it in the future.

    Pension sharing is considered a more straightforward and fairer method of dividing pensions because it allows each spouse to have their own pension fund.

    Pension sharing was introduced in the UK by the Welfare Reform and Pensions Act 1999. The act allows divorcing couples to share pension rights accrued during the marriage or civil partnership. Pension sharing orders can be made by the court as part of the divorce settlement.

    Pension sharing orders specify the percentage of the pension to be transferred to the other spouse and the type of pension scheme involved. The receiving spouse can choose to transfer the pension to a new pension provider or become a member of the existing pension scheme.

    Pension Offsetting Explained

    Pension offsetting is a method of dividing pension assets during a divorce or dissolution of a civil partnership. Instead of splitting the pension, one partner may keep the pension while the other receives other assets of equal value.

    This approach provides a clean break between the parties involved, as the pension assets are offset against other assets of the same or similar value.

    The method of pension offsetting is a relatively simple process that gives both parties a clean break.

    It does not require a court order, and the pension offsetting orders are not affected by remarriage or death. This means that each party can decide what to do with their share independently.

    Pros and cons of Pension Sharing


    • Direct Division of Assets – Pension sharing provides a direct division of assets. This means that each person has their own pension fund, which they can manage and access independently. This is often seen as a fairer option than pension offsetting, where one person keeps the pension and the other receives other assets as compensation.
    • Financial Independence – Each person has their own pension fund, which they can use to support themselves in retirement. This is particularly important for women, who often have lower pension savings than men due to career breaks and part-time work. With pension sharing, women can have their own pension fund, which they can use to support themselves in retirement, rather than relying on their partner’s pension.
    • Flexibility in Retirement Planning – Each person can choose how they want to use their pension fund, based on their individual needs and circumstances. For example, one person may choose to take a tax-free lump sum, while the other may prefer a higher regular income. With pension sharing, each person has the flexibility to make their own choices, rather than being tied to their partner’s pension plan.


    • Complex Valuation Process – The process can be time-consuming and expensive, especially if the pension is a defined benefit scheme. The couple will need to obtain a cash equivalent transfer value (CETV) which is the amount that would be transferred to another pension scheme if the member left the scheme. This can be a complicated process, and it may require the services of a financial advisor or actuary.
    • Potential for Disputes – Pension sharing involves dividing a valuable asset, and this can lead to conflict between the parties. For example, one party may feel that they are entitled to a larger share of the pension, or they may dispute the valuation of the pension. This can lead to delays and additional costs as the parties try to resolve their differences.
    • Cost Implications – Pension sharing can also be expensive, especially if the pension is a defined benefit scheme. The cost of obtaining a CETV and the services of a financial advisor or actuary can add up quickly. In addition, the parties will need to set up new pension arrangements, which can also be costly.

    Pros and cons of Pension Offsetting


    • Simplicity and Speed – Unlike pension sharing, which requires a court order and the involvement of pension administrators, pension offsetting can be agreed upon between the parties and their solicitors. This means that pension offsetting can be a quicker and less costly option for couples who want to reach a divorce settlement.
    • Retaining Pension Integrity – This means that the pension assets are not split, and each party retains control over their own pension. This can be an advantage for couples who want to maintain their pension independence and avoid the complexities of pension sharing.
    • Avoiding Pension Charges – With pension sharing, the pension assets are divided and transferred to a new pension scheme, which can result in additional charges and fees. Pension offsetting, on the other hand, allows each party to retain their own pension assets, which can help them avoid these charges.


    • Assessment Challenges – One of the main drawbacks of pension offsetting is that it requires a thorough assessment of the value of the assets involved. This can be a complex process that involves a lot of paperwork and may require the assistance of a financial expert. The assessment process can be time-consuming and expensive, which can be a disadvantage to those who want to settle their divorce quickly and cheaply.
    • Risk of Inequitable Division – Pension offsetting relies on the assumption that the value of the pension is equal to the value of other assets. However, this may not always be the case. For example, one partner may have a higher earning potential than the other, which could make the pension more valuable in the long term.
    • Long-Term Financial Impact – In some cases, pension offsetting may result in one partner receiving a larger share of the assets upfront, but this may not be the best option in the long term. For example, if one partner receives a larger share of the assets but has a lower earning potential, they may struggle to maintain their standard of living in the future.

    Choosing Between Pension Sharing and Offsetting

    The choice between pension sharing and offsetting should be based on individual circumstances.

    Some of the key things you need to consider include:

    • Age and Retirement Proximity: Those closer to retirement may prioritise immediate pension arrangements over other assets.
    • Financial Goals: Long-term financial security and intentions regarding the use of marital assets will influence the decision.
    • Asset Liquidity: The need for cash or liquid assets can sway the choice towards offsetting if retaining accessible funds is crucial.

    It’s always worth getting financial advice to understand how each option can affect your future financial position.

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