The UK Law Commission has published a report which urges policymakers to consider this question, calling it “the key issue” today in the debate around pensions and divorce.

In a scoping report about financial remedies on divorce, published late last year, the Law Commission says deciding whether pension sharing should become the default position in divorce is key, or at least if pensions need to be explicitly mentioned in divorces as something couples need to agree on.

“The end of a marriage or civil partnership is a stressful time for couples. It is important that when this happens, people should be able to understand what the law says about how their finances will be divided,” said Professor Nick Hopkins, commissioner for property, family and trusts.

“Our report concludes that the current legislation, which has not been updated for 50 years, does not provide couples with a cohesive framework for a fair or sufficiently certain outcome. We offer several models for reform for government to consider and are well placed to provide final recommendations for reform once government has decided which of these models to adopt,” Hopkins added. 

The Law Commission argues that UK law currently contains too much discretion, leaving separating couples confused and uncertain over their rights and options in financial arrangements. 

It also suggests that pensions are frequently ignored during divorce proceedings. Scottish Widows has previously found 60% of divorced women did not discuss pension assets during divorce, even as just 17% of them said those assets were immaterial; the most common reason for women not discussing pensions was a mistaken belief they were not part of the proceedings. The firm’s Women and Retirement Report 2023 also suggests that 60% of divorced women are not on track for at least a minimum retirement lifestyle. 

The Law Commission says that couples either ignore pensions or frequently ‘offset’ them against assets like the family home – a practice that does not require a court order. However, it adds that offsetting is often unfair as it puts the long-term future of primary carers at risk. 

Other options, like pension sharing and pension attachment, have their own advantages and drawbacks. The commission suggests sharing orders tend to be fairer and allow for a ‘clean break’ – which is especially important in cases of domestic abuse – but it acknowledges they make it more likely a family home might need to be sold quickly, which could add stress to an already difficult situation.

Pension attachment orders, where a pension is shared only once it is in payment, are rare nowadays as they mean one partner remains financially tied to the ex-spouse. They must wait until the spouse decides to take their pension, and payments stop if the receiving partner remarries. Where one party is much older than the other, they might see their pension reduced without the money benefitting their ex-spouse for a long time.

Pensions come in different forms and can be accessed in more than one way, making it more difficult to decide how they should be divided, the report notes; for example, they can be considered capital or income, and taken as either. What makes it even harder to obtain clarity is that traditional cash equivalent values tend to “significantly undervalue” defined benefit pensions, the commission observes, meaning a ‘pension on divorce expert’, or PODE, usually needs to be consulted to obtain an accurate valuation.

Consensus seems to be for pension sharing to become the norm, as it is seen as fairer and encourages people to consider pensions when they split up.

However, there are further issues arising from this. 

“Another question for law reform is whether, if a default statutory position were to be adopted, equal sharing of pensions should be the starting point,” the commission writes.

It also stresses that any statutory default to pension sharing would require “a comprehensive reconsideration” of how pensions are valued, to mitigate the costs and delays that come from instructing a PODE. 

“Pensions are a complicated and highly technical area. It is clear from listening to those to whom we have spoken that proper re-evaluation of the current law and procedures is imperative, to ensure that pension division becomes easier for divorcing couples to understand and engage with, and so they can secure fair and sufficiently certain outcomes,” the commission said.

The ball is now in the government's court. It will have to respond to the scoping report within a year and give an interim response within six months.

Caspar McConville, a senior associate at law firm Baker McKenzie, said the Law Commission’s report highlights that pensions are often viewed as complex, opaque and requiring expert advice to quantify.

“Consequently, divorcing couples often treat pensions as an afterthought or simply are not aware of the tangible value of their partner’s pension or even their own. All this means that only 11% of divorcing couples who are not yet drawing their pensions have pension sharing arrangements in place,” McConville said.

‘Offsetting’ is often used instead, leading to longer-term unfairness and increasing gender inequality, he agreed.

However, technical issues with implementing pension sharing can arise which can lead to significant delays for the divorcing parties, he added.

“Simplification in this area should be welcome for practitioners and for pension schemes,” he said.

Recently, Teachers’ Pensions has made headlines as a large number of teachers have been unable to conclude their divorces because of long delays in pension valuations.

If pension sharing becomes the default, the process for implementing this would need to be standardised, said McConville.

He thinks pension funds should take part in the current debate: “It would in our view be helpful for pension schemes and practitioners to be engaged actively in any future discussions on such reforms to ensure all stakeholders’ interests are taken into account.”

Lizzy Holliday, director of public affairs and policy at master trust Now Pensions, said sharing pension savings on divorce could play a huge role in narrowing the gender pensions gap.

"It is essential women understand this when settlement terms are being negotiated. Ignoring these savings can leave one spouse with insufficient funds, ultimately undermining their financial stability for decades to come."