12 May 2020
It is essential to update valuations during your divorce to reflect any changes in pension values. The 2019 Guide on the Treatment of Pensions on Divorce (the Guide) from the Pension Advisory Group set out how pensions should be dealt with on divorce. They considered the circumstances in which it is necessary to get a report from a pension expert, known as a Pension Actuary.
An Independent Financial Adviser could assist. They can confirm whether your particular pensions require an Actuarial Report, or whether they can advise on the pension options.
In the recent case of W v H (divorce: financial remedies) [2020] EWFC B10 His Honour Judge Hess gave guidance on how the Guide should be interpreted in cases. Whilst the guidance was not meant to be definitive, as to whether:
• it is appropriate to look at the division of capital values of pensions on divorce, or
• how to achieve an equal income for the parties when they retire
the case does provide some helpful guidance.
His Honour Judge Hess indicated that it may be fairer to divide pensions by way of the Cash Equivalent Transfer Value in the following circumstances:-
• Where the valuations are relatively small, or small as a proportion of the other assets of a marriage.
• Where the parties are young and future income projections are speculative or unreliable.
• Where the pension is a simple Defined Contribution fund. You may need to check with your pension companies if you are unclear about this.
• Where the sole pension involved is a non-uniform Public Sector Defined Benefit Scheme, offering internal transfers only. With Public Sector pensions, it is important to take advice regarding whether the Cash Equivalent Transfer Valuations represent a fair value of the pension fund. Such schemes are less likely to have been affected by the impact of Covid 19 than for private pensions.
His Honour Judge Hess indicated that in other cases it may not be fair to look at the Cash Equivalent Valuations and such situations are as follows:-
• Where pensions are medium or large and as a proportion of the assets overall, but needs issues still arise.
• Where there is a Defined Benefits Scheme . Advice needs to be taken, initially from an Independent Financial Adviser concerning the income derived from such schemes.
• Where the parties are older and retirement issues are more imminent.
If cohabitation moved seamlessly into marriage, parties might consider excluding a portion of pension benefits which accrued before marriage or cohabitation.
Every case is considered depending upon the extent of any pre-marriage/pre-cohabitation contributions. This would normally determine whether it is appropriate to exclude all or part of such pension benefits. Where the parties' needs require all the benefits being taken into consideration, it is unlikely to be justified, particularly if the pension funds are the greater assets.
Offsetting
Another option is "offsetting" whereby one party may want to keep different assets to pensions. His Honour Judge Hess indicated that generally offsetting should be avoided and pensions should be dealt with separately from other capital assets in view of the income in retirement which the pension funds would produce.
If you are considering offsetting, this case was a clear warning that mixing categories of assets can run the risk of unfairness. It is not always fair for one party to retain non-realisable assets, namely pensions, whilst the other party receives the more realisable assets, often either savings or a property.
This is not legal advice; it is intended to provide information of general interest about current legal issues. You also would need to clarify the position in relation to pensions with an Independent Financial Advisor.
If you require advice in relation to pension options and the distribution of family assets in divorce, you should contact family lawyers Lynne Barton or Nicola Bennetts at Aldridge Brownlee LLP on 01202 294411, Kingsway House, 13 Christchurch Road, Bournemouth, Dorset, BH1 3JY, E-Mail: Lynne.Barton@absolicitors.com or Nicola.Bennetts@absolicitors.com for a fixed fee appointment.
