Pension Earmarking

Pension Earmarking
Pension Earmarking
Full Overview Of Pension Earmarking

Pension earmarking, also known as pension attachment, is an important financial tool in divorce or the dissolution of a civil partnership. It involves allocating a portion of one spouse’s pension benefits to the other, which ensures financial security for both parties following their separation. This overview aims to clarify the concept of pension earmarking, its legal framework, processes, benefits, and considerations for those involved.

Legal Framework

Important laws like the Welfare Reform and Pensions Act 1999 and the Matrimonial Causes Act 1973 regulate pension earmarking in the United Kingdom. These laws empower the courts to issue earmarking orders during divorce proceedings. These orders allow for the transfer of pension benefits to establish fair financial arrangements between divorcing spouses.

Exploring Pension Earmarking

Pension earmarking entails a court order that directs the pension provider to allocate a specified portion of the pension benefits to the ex-spouse or civil partner. This can include:

  • Pension Income: A percentage of the pension income to be paid to the ex-spouse upon retirement.
  • Lump Sum Payments: A portion of any lump sum payable upon retirement or death.
  • Death Benefits: Allocation of death benefits to the ex-spouse.

Unlike pension sharing, where the pension assets are divided at the time of divorce, earmarking maintains the pension in the name of the original member, with payments made to the ex-spouse when the pension benefits become payable.

The Earmarking Process

Obtaining a pension earmarking order involves several steps, each requiring careful consideration and legal guidance.

Initial Assessment

The first step is an initial assessment of the pension assets. Both parties must disclose their financial information, including pension valuations. This assessment helps determine the value of the pension benefits and the appropriate portion to be earmarked.

Negotiation and Mediation

Negotiation and mediation are crucial stages where both parties, often with the assistance of solicitors, discuss and agree upon the terms of the earmarking order. Mediation can be particularly beneficial in reaching an amicable agreement, reducing the need for contentious court proceedings.

Court Application

The terms are submitted to the court for approval if an agreement is reached. In cases where negotiation fails, an application for a pension earmarking order is made to the court. Before issuing an order, the court considers various factors, including the length of the marriage, the contributions of each party, and their financial needs.


Once the court issues the earmarking order, it is sent to the pension provider responsible for implementing it. The pension provider must ensure that the designated portion of the pension benefits is allocated to the ex-spouse as specified in the order.

Benefits of Pension Earmarking

Pension earmarking offers several benefits, making it a valuable option in divorce settlements.

Financial Security

Earmarking provides financial security to the ex-spouse by guaranteeing a portion of the pension benefits. This is particularly important for spouses with lower pension savings or limited earning potential post-divorce.

Preservation of Pension Assets

Unlike pension sharing, which divides the pension assets immediately, earmarking preserves the pension fund in its entirety until the pension benefits become payable. This can be advantageous for the pension member, as the fund grows and accrues benefits.


Earmarking offers flexibility in allocating benefits, including income, lump sums, and death benefits. This allows for tailored financial arrangements that meet the needs of both parties.

Considerations and Challenges

While pension earmarking has its benefits, it also presents several considerations and challenges that must be addressed.

Dependency on Pension Member

One of the primary drawbacks of earmarking is that the ex-spouse remains dependent on the pension member for benefits receipt. If the pension member delays retirement or dies before retirement, the ex-spouse may face financial uncertainty.

Lack of Immediate Access

Earmarking does not provide immediate access to pension benefits. The ex-spouse must wait until the pension member reaches retirement age or the pension benefits become payable. This can be a disadvantage if immediate financial support is needed.

Potential for Disputes

Disputes can arise regarding the terms of the earmarking order, particularly if either party’s financial circumstances change. Ensuring clear and comprehensive terms in the court order is essential to minimising the potential for future disputes.

Alternatives to Pension Earmarking

Pension earmarking is one of several options for dividing pension assets in divorce settlements. Alternative methods must be considered to determine the most suitable arrangement.

Pension Sharing

Pension sharing involves the division of pension assets at the time of divorce, creating a separate pension pot for the ex-spouse. This method provides greater independence and immediate access to pension benefits, but it also requires careful consideration of the long-term financial impact.


Offsetting involves balancing the value of the pension benefits with other assets, such as property or savings. This allows one spouse to retain the pension in exchange for a greater share of other assets. Offsetting provides immediate financial settlement but requires accurate valuation and negotiation.

Legal and Financial Advice

Navigating the complexities of pension earmarking and alternative arrangements necessitates expert legal and financial advice. Engaging the services of solicitors and financial advisors is crucial to ensuring a fair and legally sound agreement.

Legal Advice

Solicitors play a vital role in guiding clients through the legal aspects of pension earmarking. They assist in negotiating terms, drafting agreements, and representing clients in court if necessary. Legal advice ensures that the rights and interests of both parties are protected.

Financial Advice

Financial advisors provide valuable insights into the financial implications of pension earmarking and other arrangements. They help clients understand the long-term impact on their financial security, including tax considerations, investment strategies, and retirement planning.

Case Studies and Practical Examples

To exemplify the practical application of pension earmarking, consider the following case studies:

Case Study 1: Jane and David

Jane and David have been married for 20 years. David has a substantial pension fund, while Jane has limited pension savings due to taking time off work to raise their children. During their divorce, they agree to a pension earmarking order, allocating 50% of David’s pension income to Jane upon his retirement. This arrangement provides Jane with financial security, while David retains control over his pension fund.

Case Study 2: Sarah and John

Sarah and John decide to divorce after 15 years of marriage. John has a significant pension fund, while Sarah has a smaller pension. They initially consider pension sharing but opt for earmarking due to the growth potential of John’s pension fund. The court issues an earmarking order, allocating 40% of John’s pension income and 30% of any lump sum payments to Sarah. This arrangement preserves the pension fund’s value and ensures Sarah receives a fair share of the benefits.


Pension earmarking is an important aspect of divorce settlements, ensuring fair distribution of pension benefits and financial security for both parties involved. It has its advantages, such as flexibility and preservation of pension assets, but also comes with challenges, such as reliance on the pension member and limited immediate access to benefits.

It’s crucial to have a good understanding of the legal framework, processes, and consequences of pension earmarking in order to make well-informed decisions. Exploring alternative methods like pension sharing and offsetting and seeking expert legal and financial advice are important steps in creating fair and sustainable financial arrangements.

At DLS Solicitors, we are committed to providing comprehensive legal support and guidance to clients dealing with the complexities of pension earmarking. Our experienced team is here to assist with negotiations, court applications, and tailored advice to ensure your financial future is secure. Whether you need a pension earmarking order or want to explore alternative arrangements, we are here to help you achieve the best possible outcome.

Pension Earmarking FAQ'S

Pension earmarking is a court order made during divorce or dissolution proceedings that directs a portion of one party’s pension benefits to be paid to the other party upon retirement.

Pension earmarking involves setting aside a portion of the pension benefits to be paid to the ex-spouse at retirement. In contrast, Pension Sharing immediately transfers a percentage of the pension value into a separate pension fund for the ex-spouse.

Most types of pensions can be earmarked, including occupational pensions, personal pensions, and state additional pensions. Basic state pensions cannot be earmarked.

A pension earmarking order can be made during divorce or dissolution proceedings as part of the financial settlement between the parties.

If the pension holder dies before retirement, the earmarked benefits may be lost unless the order includes provisions for survivor benefits. It’s crucial to specify these details in the order.

No, once a pension earmarking order is made, the terms cannot be varied. However, parties can apply to the court to discharge the order if circumstances change significantly.

Yes, the pension benefits received under an Earmarking Order are subject to income tax. The tax liability depends on the recipient’s tax status at the time of receiving the benefits.

The court considers various factors, including the length of the marriage, the age of the parties, their financial needs, and the value of the pension and other assets. Actuarial advice may be sought to determine the appropriate amount.

Yes, pension earmarking orders can direct lump sum payments from the pension to the ex-spouse, either at the time of the pension holder’s retirement or in certain other specified circumstances.

Key considerations include the financial independence of the parties, the complexity and cost of each option, tax implications, and the need for certainty and immediacy in the financial settlement. Pension sharing provides immediate clarity and independence, whereas earmarking ties the ex-spouse’s financial future to the pension holder’s retirement decisions.


This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 11th July 2024.

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