02: Pension offset

Pensions offset is the traditional way of dealing with pension rights, when a couple divorce. The pension rights are counted as being part of the couple's assets that are being split up between them. But in fact the partner with the pension scheme holds on to it and the other partner receives an extra amount of offsetting capital sum (usually the family home).

The offset approach is still commonly used, in spite of the introduction of alternative options for dealing with pensions. Offset has the advantage of leaving the pension untouched and giving a clean break.

Example

James and Madge are divorcing. Their assets are a house worth £300,000, £60,000 in cash and other assets as well as John’s pensions rights which have been valued at £320,000, ie total ‘assets’ of £680,000. In a clean break settlement, the court's starting point might be that James should retain his pension fund plus £20,000, and Madge should have the house plus £40,000, probably with some adjustment to these figures for the impact of tax.Last Updated