The Law Commission is currently undertaking a consultation on reforming financial remedies on divorce and strengthening protections for cohabitants at the end of their relationship. Among the issues specifically addressed is one that family lawyers have long recognised as a significant problem: pensions are commonly overlooked in divorce settlements, and the consequences can be significant.

Why pensions matter in divorce

Pensions can represent one of the most significant assets a couple holds - and in many cases, they are worth more than the family home. Yet research consistently shows that pensions are frequently overlooked, undervalued, or simply not considered as part of the financial settlement on divorce.

The Law Commission noted in their 2024 report widespread stakeholder concern about this issue. Academic studies have highlighted limited awareness of the value of pension assets, particularly among women, who often have lower pension savings due to career breaks and caring responsibilities.

The gender pension gap is a significant and well documented issue. Women are more likely to have taken career breaks; to have children, to care for elderly relatives, or to work part time to manage family responsibilities. Each of these decisions can have a lasting impact on pension accumulation. Fewer years of contributions, lower earnings, and gaps in workplace pension membership all compound over time - meaning that women frequently approach retirement with significantly less pension provision than their male counterparts.

On divorce, this disparity matters enormously. A woman who has prioritised family over career may find herself not only with a lower income but with a pension pot that is a fraction of her former spouse's. Without proper advice and a financial order that specifically addresses pension provision, the consequences can be far reaching - particularly in later life when the ability to rebuild retirement savings is limited.

This is one of the reasons why the Law Commission's proposals are so significant. Ensuring that pensions are consistently and specifically considered in financial remedy proceedings is not just good legal practice - it is a matter of fairness.

What can be done with pensions on divorce?

All pensions must be disclosed and can be considered as part of any financial settlement. There are several ways in which they can be addressed:

• Pension sharing orders transfer a specified percentage of one party's pension to the other, giving both parties their own independent pension provision going forward.
• Pension offsetting allows one party to retain their pension in exchange for the other receiving a greater share of another asset - such as the family home or other capital. However, this requires careful analysis to ensure the trade-off is genuinely fair. Pension income in retirement and capital today are not straightforwardly comparable, which is why the involvement of a Pension on Divorce Expert (PODE) is so important.
• Pension attachment orders - less commonly used - direct pension payments to a former spouse when they fall due.

Not all pensions are equal. For example, a defined benefit pension - sometimes called a final salary scheme - can be worth significantly more than its headline transfer value suggests. Getting the valuation right is critical, and specialist advice from a pension expert is essential in any case where pensions form a significant part of the assets.

What are the proposed reforms?

As part of its consultation, the government is proposing that the court should be under a specific obligation to consider the pension needs of both parties when making financial orders - going beyond the current general duty to consider all relevant assets.

The proposal is intended to support a cultural shift towards more consistent consideration of retirement needs in financial remedy proceedings, and to help address wider gender imbalances that can arise following divorce.

The Law Commission's 2024 report also identified suggestions for reform that would go further - including a default equal sharing of pensions accrued during the marriage. However, the government has expressed caution about this approach, noting that it could limit the court's discretion and may have unintended consequences, including increasing the likelihood of the marital home needing to be sold to achieve a fair outcome - with potentially significant implications for any children involved.

The consultation is ongoing and no reforms have yet been enacted. However, the direction of travel is clear: pensions are moving further up the agenda in financial remedy proceedings, and divorcing couples would be well advised to ensure they are properly addressed now.

What should you do?

If you are going through a divorce, pensions must be on the agenda, regardless of the size of the matrimonial pot. The decisions made now will shape your financial security for decades to come.