Pension sharing orders explained

Pension sharing orders (PSOs) enable courts to split pensions in divorce or civil partnership dissolution proceedings. They were introduced under the Welfare Reform and Pension Act 1999, have been effective since December 2000, and were extended to civil partnerships in 2007.

A PSO specifies the percentage of a pension that should be transferred from a member to their ex-spouse. This ensures a clean financial break, by transferring the awarded share into the ex-spouse's chosen pension scheme – giving them full control over the investments and benefits.

As part of our Bitesize Technical series, Senior Technical Consultant Joshua Croft looks at how pension sharing orders work.

Key insights on pension sharing orders

What is a pension sharing order (PSO)?

A PSO is a court order that divides a pension during divorce or civil partnership dissolution. It transfers a percentage of one party’s pension to the other party's own pension arrangement.

How does a PSO ensure a clean financial break?

The ex-spouse’s share is transferred to a new pension arrangement in their name, giving them full control over investments and benefits, independent of the original pension holder.

What determines the effective date of a PSO?

The effective date is the later of the date the final divorce order is granted, or 28 days after the PSO is granted.

How is the division of pensions determined?

The court specifies the split as a percentage of the pension’s value. In Scotland, monetary amounts may also be used.

What documents are required to implement a PSO?

The pension scheme administrator needs:

• a court-stamped copy of the PSO and its annex;
• a copy of the decree absolute; and
• the relevant discharge forms.

What’s the implementation timeline for a PSO?

The PSO must be in place within four months of the start of the implementation period, with the scheme administrator selecting a valuation date within this timeframe.

What’s the difference between ‘qualifying’ and ‘disqualifying’ pension credits?

Qualifying pension credit arises from uncrystallised rights (pension not yet in payment). The ex-spouse may receive a tax-free lump sum at retirement.

Disqualifying pension credit arises from crystallised rights (pension already in payment). The ex-spouse cannot take a tax-free lump sum, but will receive taxable income at retirement.

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