Pension Sharing Order Calculator

1. Understanding the CETV — Why It May Not Be Enough

A CETV (Cash Equivalent Transfer Value) is the lump sum a pension scheme would pay to transfer your pension entitlement to another provider. For defined contribution (DC) pensions — essentially a pot of invested money — the CETV is simply the fund value and is straightforward.

For defined benefit (DB) pensions, particularly public sector schemes, the CETV is calculated by the scheme actuary using factors prescribed by the scheme rules and GAD (Government Actuary's Department). In a low-interest-rate environment, these factors can significantly understate the pension's true value. An independent PODE actuary recalculates the "actuarial value" using market conditions, potentially producing a much higher figure.

Example: A NHS consultant's pension with a CETV of £400,000 may have an actuarial value of £550,000–£700,000. Agreeing pension offsetting against property based on the £400,000 CETV figure results in the pension-holder retaining £150,000–£300,000 more value than their spouse receives in compensation.

The Pensions Advisory Group (PAG) Guide 2019 (updated 2023) now recommends that a PODE report be commissioned for all defined benefit pensions and for any case where the pension is a significant asset. Many family courts now require one before approving pension sharing consent orders involving DB pensions.

2. The Equalisation Calculation — How It Works

The most common aim of a pension sharing order is to equalise pension wealth between the parties, so both enter retirement with similar pension resources. The calculation is mathematically simple:

Step 1: Equalisation amount = (Party A CETV − Party B CETV) ÷ 2

Step 2: Sharing percentage = (Equalisation amount ÷ Party A CETV) × 100

This percentage is expressed as the "pension debit" on Party A's pension and creates a "pension credit" for Party B of the same percentage value at the date of implementation (not the date the order was made, which can cause the final figure to differ from negotiations).

Important: Courts do not always aim for strict equalisation. Where one party is significantly older (and therefore closer to drawing benefits), where one party has poor health affecting life expectancy, or where the overall settlement favours one party through other assets, the sharing percentage may be set above or below the equalisation figure. The percentage must be specified in the court order.

Offsetting alternative: Instead of a pension sharing order, the pension-rich party can retain their pension and compensate the other party through a larger share of other assets. The key challenge is that the pension's "real" value may substantially exceed the CETV used in the offset calculation.

3. Internal vs External Transfer — Which Is Better?

Once a pension sharing order is implemented, the recipient (Party B) can choose between:

Internal transfer: The pension credit stays within the original scheme and Party B becomes a "pension credit member" of that scheme. This is only available if the scheme rules permit it, and usually only for the civil service and some other public sector schemes. The benefit is that the credit shares in the scheme's investment strategy and may receive the same defined-benefit-style growth. However, the credit member has no say in investment choices.

External transfer: The pension credit is transferred out to a pension provider of Party B's choice — typically a SIPP or personal pension. This gives greater flexibility over investment, drawdown strategy, and death benefits, but the credit is converted to a DC pot and Party B bears the investment risk. Implementation charges are generally higher for external transfers.

For DC pensions, external transfer is straightforward and common. For DB pensions (especially public sector ones), the pension credit member is typically better off staying in the scheme as the equivalent DC fund would need very strong growth to replicate the defined benefits. Independent financial advice is recommended before choosing an external transfer from a DB scheme.

4. When Is a PODE Report Required?

A PODE (Pension on Divorce Expert) is an actuary or financial planner with specialist expertise in pension on divorce valuations. The PAG guidance recommends a PODE where:

• Either party has a defined benefit pension (including public sector)
• The pension is a significant asset relative to total matrimonial wealth
• There is a large age gap between the parties (affecting the equalisation calculation)
• Either party has significant pension benefits in more than one scheme
• The parties are considering offsetting rather than sharing
• There are health issues affecting one party's life expectancy

A PODE report typically costs £1,500–£3,000 for a standard report on one or two schemes. Joint instruction is preferred (both parties share the cost, reducing total expense). The report sets out: the capitalised value of each party's pension; recommended sharing percentage for equalisation; and, if requested, a comparison of pension sharing vs offsetting options.

Courts increasingly expect a PODE report where DB pensions are involved. Without one, a judge at a contested hearing may be critical of any agreement based on CETV alone for a complex DB pension.

5. Implementation Charges and Timing

Pension sharing orders are not free to implement. Every pension scheme charges an implementation fee, which is either set by scheme rules or agreed commercially. Typical costs:

• NHS Pension Scheme: Fixed charge per current regulations (check NHS Pensions website)
• Civil Service Pension: No charge (cost borne by scheme)
• Teachers' Pension: Fixed charge per regulations
• Private DB schemes: Typically £1,500–£3,500
• Personal pensions / SIPPs: Often £500–£1,500 or a percentage of the credit value

Who pays? This is negotiable. The court order typically specifies whether the charge is shared equally or borne by one party. In practice, the receiving party often bears the cost as part of the overall settlement, though this varies.

Implementation period: Once the sealed order and Final Order are received by the scheme, they have up to 4 months (120 days) to implement. In practice, most schemes act within 6–10 weeks. The pension credit value is calculated at the implementation date, not the date of the court order — so market movements during this period can affect the final amount received.

6. Tax Treatment of Pension Sharing Orders

The implementation of a pension sharing order is a tax-exempt event for both parties:

• No CGT on the pension debit or credit — pension assets are exempt from CGT
• No income tax on the transfer itself — the credit is not treated as a benefit in kind or income
• No inheritance tax — pension funds generally remain outside estates for IHT purposes (though this may change following the October 2024 Budget announcement to bring unused pension funds into IHT from April 2027)

When the pension credit is eventually drawn, it is taxed as income in the normal way. The annual allowance (£60,000 for 2026/27) applies separately to each party's pension contributions after the order is implemented. The pension credit itself does not count against the annual allowance.

Lifetime allowance: The lifetime allowance was abolished from 6 April 2024. There are now two new tests: the lump sum allowance (£268,275) and the lump sum and death benefit allowance (£1,073,100). The pension credit received via a sharing order is tested against these allowances for the recipient — relevant where the credit is large and the recipient already has significant pension savings.

7. BEI, BEIS and Loss of Benefits

In defined benefit pension schemes, members accrue additional benefits beyond the basic pension. These are collectively referred to as Benefits in Excess of the Indexed Benefits (BEI) and can include:

• Death-in-service lump sum (typically 3–4 times salary)
• Dependants' pension (payable to a surviving spouse or nominated partner)
• Early retirement factors (enhanced commutation terms)
• Ill-health retirement benefits

After a pension sharing order, the pension debit member (Party A) retains the base pension on reduced terms. The death-in-service and dependants' pension provisions may be significantly altered by scheme rules — the ex-spouse typically loses the status of "dependant" after the Final Order. This is particularly important for public sector schemes where death-in-service benefits are substantial.

The pension credit member (Party B) becomes entitled to a pension credit and, under some scheme rules, may acquire associated dependants' benefits — but this depends entirely on the scheme's rules for pension credit members, which vary considerably. The PODE report should address the value of lost ancillary benefits and factor this into the equalization calculation.