A Pension Adjustment Order (PAO) is a legal direction issued by the Irish courts under family law legislation. It sets out how pension benefits are to be allocated between the person who holds the pension (the member) and their former spouse or civil partner (the non-member) after a relationship ends
The purpose of a PAO is to ensure that pension benefits built up during the relationship are divided in a way the court considers fair. As pensions can represent a significant long-term asset, this process plays an important role in securing future financial wellbeing following separation or divorce.
A Pension Adjustment Order can apply to two broad categories of pension benefits:
These are benefits that become payable when the pension holder retires. They may include a regular pension income, a lump sum, or a combination of both.
These benefits arise if the pension holder dies, either before or after retirement. Examples include death-in-service payments or survivor benefits payable to dependants.
PAOs can be applied across all types of pension arrangements, including:
The relevant period defines the timeframe over which pension benefits are considered for division. In most cases, this corresponds to the length of the marriage or civil partnership.
For example, if pension contributions were made over a 30-year career but the marriage lasted 20 years, only the benefits accrued during those 20 years are normally included. Contributions made outside the relationship are generally excluded from the calculation.
The relevant percentage determines how much of the pension built up during the relevant period is allocated to the non-member.
This figure is set by the court after reviewing a range of factors, such as the financial circumstances of both parties, future income needs, and how other assets have been divided as part of the overall settlement.
By way of illustration, if the court awards a 50% relevant percentage, the non-member would be entitled to half of the pension benefits accrued during the relevant period.
A Contingent Benefits Order deals specifically with pension benefits that may become payable on the death of the pension holder, particularly if death occurs before retirement.
This type of order ensures that a former spouse or civil partner continues to have an entitlement to certain death-related benefits, even after the relationship has ended. It is especially important where financial protection for dependants or children is a consideration.
A Contingent Benefits Order may be made on its own or alongside a Pension Adjustment Order. Depending on the circumstances, an individual may be entitled to a share of retirement benefits, contingent benefits, or both.
Once a PAO has been granted, the benefiting spouse or partner may have the option to transfer their share of the pension into a separate arrangement in their own name. This can provide greater flexibility and control, particularly where there are advantages in terms of investment choice, fees, performance, or access.
There are two main approaches used to divide pension benefits:
By way of illustration, if the court awards a 50% relevant percentage, the non-member would be entitled to half of the pension benefits accrued during the relevant period.
Earmarking involves directing that a portion of the pension benefits will be paid to the former spouse or civil partner when the pension holder eventually retires. No separate pension fund is created for the non-member, and payments remain dependent on the member’s retirement decisions and the rules of the scheme.
Pension splitting takes a different approach by dividing the pension fund at the point of separation or divorce. A specified percentage of the pension is transferred into an independent fund for the non-member, who then holds and manages that pension separately, subject to scheme rules.
This option is often preferred as it provides greater independence and certainty. The non-member is no longer reliant on the pension holder’s retirement timing or choices, allowing both parties to move forward with a clear and separate financial position.
While every situation must be assessed on its own merits, pension splitting is frequently chosen because it offers a clean and independent outcome for both parties.
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