When you're going through a divorce, understanding what types of pensions exist and how they work is vital to securing a fair financial settlement. Different types of pensions work in fundamentally different ways, and this matters when dividing them.
You don't need to become a pensions expert, but you do need to understand the basics. This article explains the main types of pensions in the UK and why the type of pension you or your spouse has can make a significant difference to how it should be dealt with in your divorce.
Why the type of pension matters in a divorce
Not all pensions are created equal. A defined contribution pension worth £200,000 is not the same as a defined benefit pension with a Cash Equivalent Transfer Value of £200,000. They offer varying levels of security, income amounts, and protections.
If you don't understand what type of pension you're dealing with, you risk agreeing to a settlement that looks fair on paper but leaves you significantly worse off in retirement. This is particularly true for public sector pensions, which are often undervalued using standard valuation methods.
Before we discuss how pensions should be divided in divorce, you need to understand what types of pensions exist and what makes them different.
State Pension
The State Pension is paid by the government to people when they reach State Pension age. Currently, State Pension age is 66 for both men and women, though this is scheduled to increase to 67 and eventually 68 in the coming years.
There are two main types of State Pension, depending on when you reached (or will reach) State Pension age.
The basic State Pension
The basic State Pension applies to people who reached State Pension age before 6 April 2016. The amount you receive depends on your National Insurance contribution record. To receive the full basic State Pension, you need 30 qualifying years of National Insurance contributions.
The new State Pension
The new State Pension applies to people who reach State Pension age on or after 6 April 2016. You need 35 qualifying years of National Insurance contributions to receive the full amount. The full new State Pension is currently around £230 per week (for the 2025/26 tax year), though the amount you receive depends on your individual National Insurance record.
The State Pension is treated differently from other pensions in divorce. This is important to understand because it often catches people by surprise.
The courts cannot make a pension sharing order (which we will explain in another article) in relation to the State Pension. You cannot transfer part of your State Pension to your ex-spouse, and they cannot transfer part of theirs to you.
However, this doesn't mean the State Pension is ignored. The courts may take your respective State Pension entitlements into account when dividing other assets. If one person has a full State Pension entitlement and the other has very little, this imbalance may be addressed by giving the person with the lower State Pension a larger share of other pension assets or other matrimonial assets.
If you took time out of work to raise children or for other reasons, you may have gaps in your National Insurance record. This means you might not receive the full State Pension when you retire.
It's worth checking your State Pension forecast at www.gov.uk/check-state-pension to see what you're entitled to. You may be able to make voluntary National Insurance contributions to fill gaps in your record, and this is something that could potentially be addressed as part of your divorce settlement.
Workplace pensions
Most people who have worked as employees will have one or more workplace pensions. If you've changed jobs throughout your career, you might have several different workplace pensions from different employers. These pensions don't disappear when you leave a job – they stay in your name and continue to be invested until you retire.
There are two main types of workplace pension, and understanding the difference between them is crucial.
Defined contribution pensions
Defined contribution pensions are also called money purchase pensions. They work rather like a savings account, though with important differences.
You and your employer (or just your employer, or just you) pay money into your pension pot, which is invested in things like stocks, shares, and bonds. Over time, the pot grows through contributions and investment returns. When you retire, you can use the money in your pot to provide an income.
The key thing to understand about defined contribution pensions is that the amount you will have when you retire depends on how much has been paid in and how well the investments have performed. There's no guarantee about what you'll receive. If the investments perform well, your pot grows. If they perform badly, it doesn't grow as much (or might even shrink in value).
Auto-enrolment pensions
Most modern workplace pensions are defined-contribution pensions. Since 2012, employers have been required to automatically enrol eligible employees into a workplace pension scheme and make contributions on their behalf. These auto-enrolment pensions are defined-contribution pensions.
If you've been automatically enrolled into a workplace pension through your employer, that's a defined contribution pension. Contributions are usually a percentage of your salary (both you and your employer contribute), and the pot builds up over time.
Defined benefit pensions
Defined benefit pensions are also called final salary pensions or career average pensions. They work very differently from defined contribution pensions, and they are generally much more valuable.
With a defined benefit pension, you are promised a specific income when you retire, based on your salary and how long you worked for that employer. The formula varies between schemes, but it's typically something like:
- Final salary schemes: 1/60th or 1/80th of your final salary for each year of service
- Career average schemes: A percentage (often around 1/50th or 1/60th) of your salary each year, revalued to account for inflation.
For example, if you worked for 30 years in a final salary scheme that pays 1/60th of your final salary for each year of service, and your final salary was £60,000, you would receive a pension of £30,000 per year (30 years × £60,000 ÷ 60 = £30,000).
This is a guaranteed income. It doesn't depend on how well investments have performed. It's a promise from your employer (or former employer) to pay you this amount every year for the rest of your life after you retire.
Why defined benefit pensions are often very valuable
Defined benefit pensions are generally much more generous than defined contribution pensions for several reasons:
They provide a guaranteed income for life. You know exactly what you'll receive, and you'll receive it every year until you die (and often your spouse will receive a percentage after you die).
They usually increase each year. Most defined benefit pensions increase annually with inflation or at a fixed percentage, keeping your income in step with the cost of living.
They include valuable protections. Many defined benefit pensions include spousal benefits (so your husband or wife receives income if you die first) and other death benefits.
They place no investment risk on you. With a defined contribution pension, you bear the risk that investments might perform badly. With a defined benefit pension, your employer bears that risk.
Because of these features, defined benefit pensions are often worth far more than their Cash Equivalent Transfer Value suggests. This is something we'll explore in more detail in our article on pension valuations.
Where you find defined benefit pensions
Defined benefit pensions are increasingly rare in the private sector. Most private-sector employers have closed their defined benefit schemes to new members and to future accruals for existing members. However, they are still common in the public sector.
If you or your spouse works (or has worked) in any of these sectors, you probably have a defined benefit pension:
- NHS workers
- Teachers
- Civil servants
- Police officers
- Firefighters
- Local government employees
- Armed forces
These public-sector defined benefit pensions require special consideration in divorce, which we discuss later in this article.
Personal pensions
Personal pensions are pensions that you arrange yourself rather than through an employer. They work similarly to defined contribution workplace pensions: money goes in, is invested, and builds up a pot for your retirement.
You might have a personal pension if you are self-employed, if you've taken one out to save extra for retirement beyond your workplace pension, or if you had a job where your employer didn't offer a workplace pension scheme.
Personal pensions can be set up through insurance companies, banks, investment platforms, or specialist pension providers. You decide how much to contribute and when (subject to annual limits), and you usually have some choice over how the money is invested.
Like defined contribution workplace pensions, the amount you'll have in retirement depends on how much you've paid in and how well your investments have performed.
Stakeholder pensions
Stakeholder pensions are a type of personal pension introduced by the government in 2001 to provide a low-cost option. They have capped charges (the annual management fee cannot exceed 1.5% for the first 10 years and 1% thereafter) and flexible contribution levels (you can contribute from as little as £20).
Stakeholder pensions have largely been superseded by other types of pensions, particularly since the introduction of auto-enrolment workplace pensions. However, some people still have stakeholder pensions from years ago. They work like other defined contribution pensions.
Additional Voluntary Contributions (AVCs)
If you have a workplace pension, you may have chosen to pay Additional Voluntary Contributions to increase your pension savings. These are extra contributions you make on top of the standard contributions to your workplace pension scheme.
AVCs may be held within your main pension scheme or in a separate arrangement called a Free-Standing Additional Voluntary Contribution (FSAVC) scheme. Either way, they need to be identified and valued separately during divorce.
It's quite common for people to forget about their AVCs when listing their pensions, particularly if they stopped making contributions years ago. But AVCs can be valuable, especially if you've been making contributions for many years, so it's important to check whether you or your spouse has any.
Public sector and military pensions
If you or your spouse has a public sector pension, you need to pay particular attention. Public sector pensions are almost always defined benefit pensions, and they have several features that make them especially valuable. Please read our detailed article here to read more about public sector and military pensions in divorce.
Small pensions
You might have several small pensions from jobs you held briefly years ago. Perhaps there's a pension pot with £3,000 in it from a job you had for 18 months a decade ago. Should this be included in the divorce settlement?
The answer is generally yes. While very small pensions (typically under £10,000) are sometimes left out of pension sharing arrangements because the cost of implementing a share may not be worthwhile, several small pensions can add up to a significant amount.
It's important to identify all pensions, even small ones, during the financial disclosure process. You can then decide whether it makes sense to include them in any pension sharing arrangement or whether to deal with them in another way.
Don't automatically dismiss small pensions. £5,000 here and £8,000 there can quickly add up to £20,000 or £30,000, which is a meaningful amount of retirement income.
What you need to do
Now that you understand the different types of pensions, here's what you need to do:
Identify all your pensions
Make a complete list of every pension you have. This includes:
- Your current workplace pension
- Any workplace pensions from previous jobs
- Any personal pensions you've taken out
- Any AVCs you've made
- Your State Pension entitlement
If you've lost track of old pensions, the government's Pension Tracing Service (www.gov.uk/find-pension-contact-details) can help you track them down using details of your past employers.
Identify all your spouse's pensions
Your spouse needs to do the same. They should provide details of all their pensions as part of the financial disclosure process in your divorce.
Understand what type each pension is
For each pension, work out whether it's:
- A defined contribution pension (including auto-enrolment workplace pensions and personal pensions)
- A defined benefit pension (particularly important if it's a public sector pension)
- The State Pension
This matters because different types of pensions require different approaches to valuation and division.
Get professional advice
If you or your spouse has a defined benefit pension, particularly a public sector pension, get advice from a specialist family lawyer. These pensions are complex, and you need to ensure they're properly valued and divided.
Even if you only have defined contribution pensions, it's still worth getting legal advice to ensure your overall divorce settlement is fair and takes proper account of all the pension assets.
What happens next?
Understanding what types of pensions you have is just the first step. Next, you need to understand:
- How to value these pensions correctly (particularly important for defined benefit pensions)
- What options you have for dealing with them in your divorce (pension sharing, offsetting, or pension attachment)
- What mistakes you need to avoid
- When you need expert advice from a Pension on Divorce Expert
This information is for guidance purposes only and does not constitute legal advice. We recommend you seek legal advice before acting on any information given.
