Get more time to pay with Klarna.

Pension Offsetting in Divorce – Everything You Need To Know

Table Of Contents

    Pension offsetting in divorce allows one party to retain the total value of their pension, in exchange for providing their former partner with alternative matrimonial assets of the same value.

    So instead of actually giving up a portion of their pension, they can instead forego the relevant value of their share of the marital home or joint savings, etc.

    Pensions often make up a substantial portion of the matrimonial pot – the collection of assets that are divided up in the divorce settlement.

    In fact, pensions are often the second most valuable asset after the marital home.

    What is Pension offsetting?

    Pension offsetting is one of the three primary options available to couples when divorcing or dissolving a civil partnership and needing to divide up pensions.

    The value of any pension is offset against other assets of the same or similar value and it provides a financial clean break between all parties.

    However, working out the value of respective pension schemes within the marital pot can be quite a complex process, and valuing a pension when offsetting can lead to undervaluations.

    As a result, many divorcing couples fail to take pensions into account as part of the overall financial settlement, leaving behind one of the most valuable assets within a marriage.

    In this article, we will explain the method of dividing up the value of pensions between divorcing parties, known as pension offsetting.

    How does Pension Offsetting actually work?

    1. Calculate total assets – In order to use the method of pension offsetting in divorce proceedings, it is first necessary to work out the total value of any shared assets and add these to the matrimonial pot. This includes all pension and non-pension assets.
    2. Calculate pension value – In order to calculate the value of a pension when negotiating an offset, the ‘cash equivalent transfer value’ (CETV) is mostly used for Defined Contribution Schemes but not for Defined Benefit Schemes as the CETV will not represent the true value of the pension benefits. It is recommended that the parties instruct a Pensions on Divorce Expert to ascertain the true value of the pension assets and not rely solely on a CETV.  You should obtain advice before agreeing to a value based on a CETV.
    3. Substitute other assets – Choose another type of asset of the same value as the pension to offset against the value of the pension. For example, if the pension benefit is worth £100,000, savings worth £100,000 can be substituted.
    4. Divorce settlement – The specifics of the pension offsetting arrangement should be included in the final divorce settlement. Once this has been approved by a court in a Solicitor Managed Consent Order it will be permanent and legally binding.

    pension offsetting example

    Pros and Cons of Using Pension Offsetting


    • Pension offsetting helps to achieve a “clean break” without the need for assets to be shared in the future.
    • Pension offsetting orders are not affected by remarriage or death.
    • It can be ideal in the case of overseas pension assets which cannot be shared via a UK court order.


    • If the other divorcing party has no pension, although they will receive assets of the equivalent value, they might be left with no provision for their retirement.
    • Calculating other assets to offset against the value of the pension can be tricky, eg in the case of business assets independent valuations may need to be sought.
    • In some cases, where the value of the pension of a divorcing party is their most valuable asset, it may be difficult to find alternative assets of an equivalent value.
    • Using a CETV as the basis of a valuation may not produce the true value of the total pension benefits.

    Example of How Pension Offsetting Works in Divorce

    Mike and Jane are getting divorced. They have shared savings of £50,000.

    Mike has a pension with an agreed value of £50,000 and he wants to retain this in full.

    If they were to add the value of Mike’s pension to the matrimonial pot, Jane would potentially be entitled to around half its value (on the assumption of a 50:50 split), so her share equates to £25,000.

    For Mike to retain his pension in full, he could substitute his share of their joint savings which also equates to £25,000 (on the assumption of a 50:50 split).

    So the value of joint savings would be offset against the pension value. Mike would keep his full pension and Jane would keep all the joint savings.

    It can be complex and costly to implement a pension sharing order, which is one of the main reasons why many couples choose to offset their pension against other assets of a similar value as this avoids a lot of complexity involved with sharing pensions.

    How is pension offsetting different from pension sharing?

    Pension offsetting should be distinguished from pension sharing orders.

    Under a pension sharing arrangement, one divorcing party receives a share of their ex-spouse’s pension pot in the form of a “pension credit”.

    This pension credit can then be transferred into their own pension scheme. A pension sharing order is a court order which sets out the details of this arrangement.

    Although pension offsetting and pension sharing both result in a “clean break” between divorcing parties, the former involves a transfer of non-pension assets whereas the latter involves a transfer of pension assets.

    Compare pension sharing vs pension offsetting in more detail, by reading our guide exploring the pros and cons of each option.

    We can help with Pension Offsetting Orders in divorce

    More information about pensions and divorce is available in our pensions section which will help you understand what you need to do about pension sharing and how to come to an agreement about pension assets with your ex-partner.

    Both parties should seek independent legal advice from family law solicitors to understand their legal position and get clarity about their options.

    There is no one-fits-all method for dividing assets, especially pensions, so you need to ensure you are making the best decision for your financial future.

    If you have reached an agreement on how pension funds will be split as part of your financial settlement, view our online consent order service to see how we can help you save thousands in legal fees.

    For more information, you can speak with our team on Live Chat, call us at 01793 384 029, or request a free callback.

    Was this article helpful?