Understanding Pension Sharing in Divorce: Why the Cash Equivalent Value Does Not Always Tell the Full Story

When couples separate, pensions are often one of the largest assets involved - sometimes even more valuable than the family home. Yet pensions are also one of the most misunderstood parts of financial settlement discussions during divorce or separation and, for some, it is easy just to rush to a decision about pensions in order to get an agreement.

At Sussex Mediation House, we regularly help couples explore fair and practical ways to deal with pensions during mediation. One of the most important things to understand is that the Cash Equivalent Value (CEV), sometimes called the CETV, does not always reflect the true value or future benefit of a pension.

Understanding this can help separating couples make more informed and balanced decisions that will work for needs now and in the future.

What Is a Pension Cash Equivalent Value (CEV)?

A Cash Equivalent Value is the figure provided by a pension provider that estimates the current transfer value of a pension.

In simple terms, it is supposed to represent:

• what the pension is worth today,

• and what might be transferred to another pension scheme.

This figure is often used during divorce financial negotiations because it provides a starting point for comparing pensions against other assets.

However, many people assume:

“If both pensions have the same CEV, they must be equal.”

Unfortunately, that is not always true.

Why Two Pensions With the Same CEV May Be Very Different

Different pension schemes provide very different benefits.

For example:

Defined Benefit (Final Salary) Pensions

These often provide:

• guaranteed lifetime income,

• inflation protection,

• spouse benefits,

• valuable public sector guarantees.

Examples include:

• NHS pensions,

• Teachers’ pensions,

• Police pensions,

• Civil Service pensions.

A defined benefit pension with a CEV of £300,000 may produce significantly more long-term income than a private defined contribution pension with the same value.

Defined Contribution Pensions

These are investment-based pension pots where:

• the value depends on contributions and investment performance,

• there are no guaranteed retirement incomes,

• and the holder bears investment risk.

Two pensions with identical CEVs may therefore provide very different retirement outcomes.

Why Relying Solely on the CEV Can Create Unfair Outcomes

Many separating couples focus heavily on:

• the house,

• savings,

• and immediate financial needs.

Pensions can become overlooked or treated too simplistically.

This can create unfairness, especially where:

• one person sacrificed career progression to care for children,

• one spouse built substantial workplace pensions,

• or retirement ages and future income needs differ significantly.

In some cases, offsetting a pension against equity in the home may appear fair on paper but leave one person financially vulnerable in retirement.

For example:

• One spouse keeps the entire pension.

• The other keeps more of the house equity.

At first glance the values may appear balanced.

But:

• pension income may grow tax efficiently,

• housing equity is illiquid,

• retirement income security may become unequal,

• and future mortgage or housing costs may still exist.

What Is Pension Offsetting?

Pension offsetting means one person keeps more of a pension while the other receives:

• more equity in the property,

• savings,

• investments,

• or other assets instead.

Offsetting can work well in some situations, particularly where:

• both parties want a clean financial break,

• retirement is many years away,

• there are sufficient non-pension assets available,

• or one person wishes to remain in the family home for children’s stability.

However, offsetting requires careful thought because £1 inside a pension is not always equal to £1 of accessible cash or property equity.

When Offsetting May Be Appropriate

Offsetting may work where:

• pensions are relatively modest,

• both parties have their own pensions already,

• there is a strong desire to avoid pension sharing orders,

• or liquidity and housing needs are more urgent than retirement balancing.

For example:

• one party may keep more home equity to rehouse,

• while the other retains a pension expected to mature later in life.

Mediation can help couples explore whether this genuinely meets both parties’ long-term needs.

When Pension Sharing May Be Fairer

A pension sharing order formally divides pension benefits between spouses.

This can often be more appropriate where:

• one pension is substantially larger,

• there has been economic dependence during the marriage,

• retirement provision is highly unequal,

• or one spouse has limited future earning capacity.

Pension sharing can help create greater long-term independence and financial security for both people.

The Importance of Expert Advice

In some cases, a pension on divorce expert (PODE) or actuary may be needed to provide a more accurate assessment of pension value and fairness.

This is particularly important for:

• public sector pensions,

• defined benefit schemes,

• large pensions,

• or complex financial cases.

Specialist reports can help identify:

• true income value,

• fair sharing percentages,

• and whether offsetting proposals are genuinely balanced.

How Mediation Can Help

Family mediation allows couples to discuss pensions constructively and transparently, often reducing conflict and legal costs.

At Sussex Mediation House, mediation sessions can help couples:

• understand pension options,

• explore fair outcomes,

• consider future financial needs,

• and avoid rushed or emotionally driven decisions.

• direct you to a PODE advisor, if required

Every family’s circumstances are different. What feels fair today also needs to remain workable in retirement years.

In mediation, we save you costs in reaching agreements and use our extensive divorce and separation training and knowledge of pensions and the law, to sign post you to specialist services, such as PODE (pension divorce specialists) when needed.

Final Thoughts

Pensions are often one of the most valuable assets in divorce, yet they are frequently underestimated or misunderstood.

The Cash Equivalent Value is only a starting point — not always a true reflection of future retirement income or financial security.

Fairness in financial settlement discussions often requires looking beyond simple headline figures and considering:

• long-term needs,

• future income,

• housing security,

• retirement planning,

• and overall financial balance.

Careful discussion, expert input where needed, and constructive mediation can help separating couples reach informed and sustainable agreements for the future.

At Sussex Mediation House, our expert mediators will guide you through each stage of your financial discussions. We care about local families and want you set up for success now and in retirement.