Pension offsetting explained

Pension offsetting is a way of dividing marital assets during divorce, without splitting the pension itself. Instead, one spouse retains their full pension rights, while the other is compensated with other assets, such as the marital home.

As part of our Bitesize Technical series, Senior Technical Consultant Joshua Croft looks at how pension offsetting works.

Key insights on pension offsetting

• The member retains their pension, and the ex-spouse receives equivalent value through other marital assets, ensuring a clean financial break.
• Offsetting is considered one of the simplest methods for handling pensions in a divorce, since it requires no action from the pension scheme administrator.
• Comparing the value of pensions with other assets can be complex, particularly for defined benefit pensions without a clear investment pot for valuation.
• Illiquid pension assets, like property, may make offsetting practical in certain cases.
• There’s a risk of one party having little or no pension rights, which can be problematic if they are close to retirement and have limited time to build a new pension.
• It’s possible to use offsetting alongside a smaller pension sharing order to balance asset division.

More Bitesize Technical

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