A pension sharing order on divorce or dissolution reduces one spouse’s pension rights by a pension debit and gives the other spouse a pension credit of the same value, held in their own name. The credit is not a contribution, so it does not use the recipient’s annual allowance, and the defined benefits annual allowance calculation is adjusted so that neither the debit nor the credit distorts either person’s pension input amount for the year of the split.

What is a pension sharing order?

When a marriage ends in divorce or a civil partnership is dissolved, the financial settlement can give one party a share of the value of the other’s pension rights. HMRC’s Pensions Tax Manual at PTM029000 explains that this is done by applying to the court for a pension sharing order, which awards a percentage of the value of the member’s rights. The amount must be used to provide the recipient with their own pension benefits. In Scotland the process is essentially the same, although the share may be set by a legally binding agreement rather than a court order.

The mechanics in England, Wales and Scotland sit in section 29 of the Welfare Reform and Pensions Act 1999. The member (the transferor) has their shareable rights made subject to a debit, and the former spouse or civil partner (the transferee) becomes entitled to a credit of the same amount. Where the order specifies a percentage, the amount is that percentage of the cash equivalent of the relevant benefits on the valuation day. Where it specifies a fixed sum, the amount is the lower of that sum and the cash equivalent.

The scheme then has an implementation period of four months to put the credit into effect. Under section 34 of the 1999 Act that period runs from the later of the day the order takes effect and the first day the scheme holds the required documents and information.

What happens to each person’s pension rights?

PTM029000 describes the scheme’s role. The member’s rights are valued to give a cash equivalent, which is then reduced by the amount in the order. That reduction is the pension debit. The same amount is allocated to the former spouse or civil partner to create rights in their own name, which is the pension credit.

  • Benefits not yet in payment: the member’s rights are reduced to reflect the debit.
  • Pension already in payment: the member’s ongoing pension is reduced.
  • Where the credit goes: depending on the scheme, the credit may stay in the same scheme or be transferred to another scheme for the recipient. A recipient with no pension of their own might join the scheme that received the order or, more commonly, transfer the credit to a scheme such as a personal pension.

A recipient can generally take the same types of benefit from a pension credit as any other member. The exception in PTM029000 is a credit derived from rights that were already in payment when the order was made. In that case no lump sum can be paid from the benefits that the credit eventually provides.

Does a pension credit count towards the annual allowance?

No. PTM029000 states that if the recipient is already a member of a pension scheme and is contributing to it, receiving the pension credit does not count for annual allowance purposes and has no bearing on the member’s capacity to make contributions. The annual allowance for 2026 to 2027 is £60,000, so a recipient who is still working keeps their full allowance for their own saving even if the credit is far larger than that.

How the law achieves this depends on the type of arrangement the credit goes into:

  • Money purchase arrangements: the pension input amount is based on contributions paid, and a pension credit is not a contribution, so it never enters the figure.
  • Cash balance arrangements: the credit is deducted from the closing value for the pension input period in which it is received (PTM053710).
  • Defined benefits arrangements: section 236(3) of the Finance Act 2004 subtracts the increase in pension or lump sum that comes from a pension credit when working out the closing value. PTM053301 confirms that only a credit from the same or another registered pension scheme is treated this way.

Because a credit is not a contribution, it also attracts no tax relief. Relief belongs to the contributions that originally built up the rights.

How does a pension debit affect the member’s annual allowance?

For a money purchase arrangement the debit simply reduces the pot and has no effect on the input amount, which still equals contributions paid. For defined benefits arrangements, section 236(2) of the Finance Act 2004 adds back the amount by which the member’s pension or lump sum was reduced by the debit when calculating the closing value. PTM053301 gives the same instruction: add the pension (and any separate lump sum) relating to the debit to the expected benefits at the end of the period before working out the closing value.

The purpose is symmetry. Without the add back, a large debit in a year when the member was still building up benefits would make the year’s growth look negative and hide the real accrual. With it, the pension input amount reflects only what the member actually built up. The adjustment applies only in the pension input period in which the debit takes effect. Our guide to the defined benefit pension input amount explains the wider calculation.

What does this look like in numbers?

HMRC’s own example at PTM053710 covers a pension credit into a cash balance arrangement. Angela’s pot was £180,000 immediately before the pension input period. With CPI of 2.5% for the example, her opening value is £184,500. During the period she receives a pension credit of £62,500, and at the end of the period her pot is £247,750. The credit is taken off the closing value, giving £185,250. Her pension input amount is £185,250 minus £184,500, which is £750. Without the adjustment it would have been £63,250 and would have used most of her annual allowance.

Illustration only. Mark is in a final salary scheme. At the end of the pension input period his expected annual pension, after a pension debit has reduced it by £6,000 a year, is £14,000. For the closing value the scheme works from £20,000, because section 236(2) adds the £6,000 back. HMRC’s examples then multiply the annual pension by a flat factor of 16, so the closing value is based on £320,000 rather than £224,000. If his opening value was £300,000 after the CPI uplift, his input amount is £20,000, not a negative figure.

Can the member rebuild their pension after a debit?

Yes. PTM029000 says there would not normally be anything preventing the member making contributions to make up the shortfall, subject to the normal restrictions on tax relief. Relief is still limited to the higher of £3,600 and the member’s relevant UK earnings (PTM044100), and saving above the annual allowance, after any unused allowance carried forward from the previous three tax years, triggers a tax charge. See our guides to the pension annual allowance and carry forward.

There is one trap. PTM029000 warns that a member who applied for and received enhanced protection, fixed protection or fixed protection 2014 on or after 15 March 2023 may lose that protection by paying extra contributions. Members holding a valid protection before 15 March 2023 do not lose it by contributing.

How does a pension debit affect individual protection?

PTM176560 explains that becoming subject to a pension debit is the only event that can reduce or remove individual protection 2014 or 2016. The protected amount is reduced by the debit. Where the transfer day is on or after 6 April 2015 for IP2014, or 6 April 2017 for IP2016, the debit is first reduced by 5% for each full tax year that has passed since the protection began. If the result takes the protected amount to £1,250,000 or less for IP2014, or £1,073,100 or less for IP2016, the protection is lost.

For IP2014 the member must tell HMRC within 60 days of the date of the pension debit, giving its date, its amount and the reduced figure, and may face penalties if they do not. IP2016 holders have a similar duty to notify when they receive a discharge notice. The reduction runs from the effective date of the order, not the later date on which the scheme actually splits the rights. Our guide to lifetime allowance protections covers the protections themselves.

Before 6 April 2024 a recipient could also register a pension credit enhancement factor against the lifetime allowance. PTM175100 confirms that from 5 April 2025 no one can apply for any of the enhancement factors, including the pension credit factor.

What mistakes come up most often?

  • Reporting the credit as a contribution on a pension savings statement or tax return, which overstates the recipient’s annual allowance usage.
  • Forgetting the defined benefits add back for the debit, which can produce a nil or negative input amount that hides genuine accrual in the same year.
  • Assuming a credit from a pension already in payment can be used to take a tax free lump sum.
  • Rebuilding contributions without checking whether a fixed or enhanced protection granted on or after 15 March 2023 would be lost.
  • Missing the 60 day notification for IP2014 after a debit.
  • Treating the pension split in isolation. Other assets transferred in the settlement raise their own capital gains questions, covered in capital gains on separation and divorce.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.