Pension attachments order & earmarking
Earmarking refers to an attachment order made by the court which requires a proportion of the pension benefits to be paid directly to an ex‑spouse/former civil partner, instead of to the member. This method was introduced under the Pensions Act annulment and judicial separation. It is in effect a form of deferred maintenance. The benefits continue to be held in the original member’s plan until the member starts drawing an income (and/or when they die), when the benefits will be paid to the respective parties in the proportions required by the earmarking order.
Earmarking orders in England, Wales and Northern Ireland may be made against a member’s:
- Pension commencement lump sum
- Pension income
- Death-in-service lump sum death benefits
In Scotland, only the tax-free cash lump sum and lump sum death benefits can be earmarked rather than pension income.
The amount is specified at the time of the divorce but either party can apply to the court to have the amount varied. In practice, an agreement in principle is likely to be made between the parties before being ratified by the courts. Earmarking cannot take place without the courts’ involvement.
As an example:
An attachment order could be added to a member’s pension stipulating that when they retire and draw income from the pension, 50% of the income they receive must be paid to their ex‑spouse/former civil partner.
Where an earmarking order includes lump sum death benefits, the order can compel the inclusion of the ex‑spouse/former civil partner as a beneficiary, thereby overriding the normal discretion that administrators/trustees have over the selection of beneficiaries who receive death benefits. This power does not extend to the redirection of dependant’s pensions on the member’s death.
State Pension benefits, including State Second Pension (S2P), cannot be made the subject of earmarking orders. While a divorced person can claim the contribution record of the ex‑partner for the basic State Pension, it is not possible to do the same for any state earnings related pension scheme (SERPS)/(S2P) benefits. This will also not be possible for the new single-tier State Pension, although pension sharing will be available if there is a protected payment.
If the member subsequently transfers any of their pension benefits that have been subject to an earmarking order, the scheme trustees would have to inform the new trustees/providers of the earmarking order. They must also notify the ex‑spouse/former civil partner within 21 days of the transfer.
When the member dies after commencing benefits, the pension to the ex‑spouse/former civil partner will also cease. There are normally no subsequent widow’s benefits either, though this could be included in the earmarking order, particularly if the ex‑spouse/former civil partner was clearly financially dependent on the member pre-divorce.
The court could decide, as in the case of T v T1, to defer deciding on an earmarking order until nearer the member’s actual retirement date.
The suitability of various options for pensions on divorce will depend on the particular circumstances of each individual. Different options may have different effects for tax purposes, different implications for pension provision and different impacts on other assets and financial planning, as well as different legal impacts on the distribution of assets on divorce.
This page provides information and is only intended to provide an overview of the current law in this area as at August 2018 and does not constitute financial advice, tax advice or legal advice, or provide any recommendations. This is a complicated area, and individuals going through a divorce should take tailored, appropriate advice about their financial settlement on divorce and future tax and financial planning.
Tax limits, allowances and rules are often subject to change and may change in future. Individuals should check that tax limits, allowances and rules have not changed.