Case Study: Pensions in Divorce — How to Share a DB and DC Pension Fairly (2026 Guide)

Divorce is one of life’s most financially disruptive events — and when pensions are involved, the complexity multiplies considerably. Pensions are often the second largest asset in a marriage after the family home, yet many divorcing couples vastly underestimate their value or fail to address them properly in a settlement.

This hypothetical case study — drawn from the type of scenario we see regularly — illustrates how pension sharing on divorce works in practice, what the key decisions are, and why specialist pension advice is so important at this life stage.

All names and personal details in this case study are fictional. This is a hypothetical example for educational purposes only and does not constitute financial advice.

Background: Caroline and Richard

Caroline is 52 years old and a secondary school teacher in the North of England. She has worked in the state sector for 28 years and is a member of the Local Government Pension Scheme (LGPS) — a valuable defined benefit (DB) pension that will pay a guaranteed income in retirement based on her years of service and salary.

Her husband Richard, 54, is a self-employed financial consultant. Over the years he has accumulated a self-invested personal pension (SIPP) through a combination of personal contributions and employer contributions from earlier employed positions.

After a difficult two years, Caroline and Richard have decided to divorce. Their solicitors have advised that pension assets must be considered as part of the overall financial settlement.

Their Pension Position

• Caroline’s LGPS DB pension: Cash Equivalent Transfer Value (CETV) of £380,000. Projected income: approximately £17,200 per year from age 67, with 50% spouse’s pension
• Richard’s SIPP: Current fund value of £210,000, invested across a range of equity funds
• State Pension: Both have near-full NI records — Caroline slightly lower due to time part-time working when children were young

The Key Questions

When Caroline came to us for pension advice during her divorce proceedings, she had several pressing questions:

1. Should pensions be divided 50/50?
2. Can a DB pension (like LGPS) be shared in divorce?
3. What is a Pension Sharing Order, and how does it work?
4. Is offsetting pension against other assets (like the house) a better option?
5. What are the tax implications of pension sharing?
6. Will she need a pension transfer specialist?

Understanding Pension Sharing on Divorce

In England and Wales (Scotland has its own system), there are three main ways pensions can be dealt with on divorce:

1. Pension Sharing Orders

A Pension Sharing Order (PSO) is a court order that transfers a specified percentage of one spouse’s pension rights to the other. It is the most common approach for equalising pension assets. The receiving spouse gets their own independent pension entitlement — they are not dependent on the other party dying or remarrying.

For a DB pension like Caroline’s LGPS, the receiving party (Richard) would get a “pension credit” — a share of Caroline’s scheme membership, giving him a deferred entitlement to LGPS income. Alternatively, he could transfer his pension credit to a personal pension (SIPP), if the scheme rules allow.

For Richard’s SIPP, a PSO would transfer a percentage of the fund to Caroline’s own pension arrangement.

2. Pension Offsetting

Here, one party keeps their pension in full, and the other receives a greater share of other assets (typically the family home) to compensate. This is simpler administratively but requires careful actuarial valuation to ensure a fair trade — a £380,000 CETV pension is not necessarily equivalent to £380,000 of equity in a property.

3. Pension Attachment Orders (Earmarking)

Less common and generally less favoured. A portion of future pension income or lump sum is paid to the ex-spouse when the pension is drawn. Problems include: the receiving party remaining dependent on the other’s employment/retirement decisions, and the order potentially ceasing on remarriage.

Caroline and Richard’s Analysis

To assess the fairest approach, several factors were considered:

The True Value of Caroline’s LGPS Pension

With a CETV of £380,000 and projected income of £17,200 per year from age 67, Caroline’s pension provides:

• Guaranteed inflation-linked income for life
• 50% spouse’s pension — worth significant actuarial value (if she were to remarry)
• Death in service lump sum and dependants’ pension if she dies before retirement
• Pension Protection Fund backing (though LGPS is exceptionally secure as it is backed by local government)

An actuarial report estimated the true economic value of Caroline’s LGPS pension at approximately £490,000–£510,000 — significantly above the CETV of £380,000. This is an important distinction when comparing it against Richard’s SIPP (£210,000), which carries full investment risk and no guarantee.

Comparing DB vs DC — Apples and Oranges

It would be simplistic to compare £380,000 (CETV) to £210,000 (SIPP fund) and say Caroline has more. The nature of the assets is fundamentally different:

The Agreed Settlement Approach

After specialist pension advice and negotiation between solicitors (with actuarial input on the LGPS value), the following approach was agreed:

Step 1: LGPS Pension Sharing Order (Caroline → Richard)

A Pension Sharing Order was applied to Caroline’s LGPS pension. Richard received a 22% pension credit (reflecting the actuarial disparity between the two pension values). This gives Richard a deferred entitlement within the LGPS scheme. He will be able to take this pension from his Normal Minimum Pension Age (rising to 57 from April 2028).

Richard’s LGPS pension credit entitlement: approximately £3,784 per year from age 67 (22% of Caroline’s projected £17,200 income).

Step 2: SIPP Pension Sharing Order (Richard → Caroline)

A Pension Sharing Order was also applied to Richard’s SIPP. Caroline received a 35% pension credit — £73,500 transferred to her own new personal pension arrangement. This was invested in a low-cost, diversified portfolio suited to her 15-year investment horizon before retirement.

Step 3: Retirement Income Projections

Post-settlement, both Caroline and Richard’s projected retirement income positions were modelled:

Caroline:

• LGPS (78% of original entitlement): ~£13,416/year from 67
• SIPP (pension credit from Richard, growing over 15 years): potentially £4,800–£7,200/year in income / drawdown equivalent
• State Pension (full or near-full): ~£11,502/year (2024/25 rate)
• Total projected income: ~£29,700–£32,100/year

Richard:

• SIPP (65% of original, continuing growth over 13 years): ~£10,000–£14,000/year in drawdown
• LGPS pension credit: ~£3,784/year from age 67
• State Pension: ~£11,502/year (2024/25 rate)
• Total projected income: ~£25,300–£29,300/year

Both parties emerged in a broadly equitable position, with Caroline’s superior DB pension partially offset and Richard’s SIPP partially shared — reflecting the different risk profiles and actuarial values involved.

Key Considerations in Pension Divorce Cases

1. Get a Pension on Divorce Expert (PODE) Report

For significant pension assets, both parties’ solicitors may recommend commissioning a Pension on Divorce Expert (PODE) report. This provides an actuarial assessment of the “true” value of DB pensions (not just the CETV) and recommendations on pension sharing percentages to achieve equity. Courts increasingly expect PODE reports in complex pension divorce cases.

2. Lump Sum Allowance (LSA) Implications

From April 2024, the Lifetime Allowance was replaced by the Lump Sum Allowance (LSA: £268,275) and Lump Sum and Death Benefit Allowance (LSDBA: £1,073,100). Receiving a pension credit does not use up the recipient’s LSA at the point of transfer — but when benefits are eventually drawn (particularly tax-free cash), both parties should ensure they understand their available allowances. A pension specialist can advise on this.

3. The 2027 Pension IHT Changes

From April 2027 (subject to legislation), unspent defined contribution pension pots are expected to be included in a person’s estate for Inheritance Tax purposes. This affects how DC pension assets (like SIPPs) should be factored into divorce settlements — they will be less IHT-efficient than they once were. This is particularly relevant when comparing the death benefits of DB vs DC pensions in a divorce context.

4. Timing and CETV Validity

CETVs from DB schemes are typically valid for three months. If divorce proceedings are prolonged, a new CETV may be needed — and the figure can change significantly if gilt yields or scheme funding levels shift. In volatile markets, this can create uncertainty and delays.

5. Defined Benefit Transfers Require Regulated Advice

If Richard had wished to transfer his LGPS pension credit out of the scheme (rather than retaining it as a deferred entitlement), he would require regulated advice from a Pension Transfer Specialist, as the credit was over £30,000. This is a mandatory FCA requirement. The advice would consider whether transferring his pension credit was in his best interests — in most cases, retaining DB benefits is likely to be recommended.

What Caroline Learned

Looking back, Caroline identified several lessons from navigating pension sharing during her divorce:

1. Get pension-specialist advice early — not just general financial advice. Pensions on divorce require expertise in both DB and DC schemes, actuarial valuations, and the legal framework around PSOs.
2. Don’t compare CETVs at face value — a £380,000 DB pension CETV and a £380,000 SIPP are fundamentally different assets with different risk profiles and values.
3. Consider a PODE report for large DB pensions — it cost around £2,000 but resulted in a much fairer settlement that reflected the true value of both pensions.
4. Factor in future pension contributions — Richard was still self-employed and likely to continue building his SIPP. This was considered in the overall settlement.
5. Think about State Pension gaps — Caroline had some gaps from part-time working years. She explored making voluntary Class 3 NI contributions (£824.20 per missing year in 2025/26) to top up her State Pension entitlement.

Seeking Professional Advice on Pension Sharing

Pensions on divorce are among the most complex financial matters people face. Whether you are the pension “sharer” or the pension “recipient”, you need clear, specialist guidance to protect your long-term financial security.

A qualified pension transfer specialist can help you:

• Understand the true value of defined benefit pensions versus DC schemes
• Model different pension sharing scenarios and their impact on retirement income
• Assess whether transferring a pension credit (once awarded) is appropriate
• Navigate the CETV and PSO process with your legal team
• Consider State Pension positions and NI gaps
• Plan your overall retirement strategy post-divorce

This is not an area to navigate alone. The decisions made during divorce proceedings will affect your retirement for decades to come.