After two years of investigating, the Pension Advisory Group has published their report which can be found here. This is excellent, a very useful resource, giving much needed advice and making recommendations about how pensions should be dealt with on divorce.
Pensions come in many different forms. They can be simple, or complex. The court has the power to make a pension sharing order, or offset pension claims (and also the very rare pension attachment order). Often it’s important to take advice from a pension expert, but this can be expensive. The report gives very useful guidance and flags up some of the issues. This includes:
- Information gathering. You need to make sure you fully understand what’s available. There can be complications such as guarantees or underfunded schemes.
- How to approach valuations. Are you looking to equalise the fund? Incomes? If so, at what age? Are there complicating factors.
- We all know by now that defined benefit pensions (typically public service pensions, or final salary schemes) may be misrepresented by the Cash Equivalent Value. The CEV is a snapshot of the value of a pension today, which is fine for a Defined Contribution scheme (such as a standard personal pension or SIPP), which is likely to be invested in stocks or other assets so a snapshot valuation is fairly straightforward. For a Defined Benefit scheme, there might not be a fund. Instead it’s a legal right to receive income in the future. Valuing this is an art not a science. You need to consider whether the CEV’s are appropriate and reliable.
- Some schemes are underfunded. Some still offer guarantees. Also, we now have pension freedoms including the right to draw some benefits early etc. These complications may only be picked up by an expert.
- The guide introduces the new term PODE for a Pension On Divorce Expert.
- It flags up the difficulty of offsetting (for example, where one person keeps the pension and the other person keeps the house). How can this be worked out correctly or fairly?
- The income gap – the older spouse might be able to draw their pension long before a younger spouse – how can this be addressed? If the fund is being divided equally, the younger spouse may receive less income if they both drew their pension sat the same time.
- Is it fair and possible to ring fence pension accrued prior to a relationship?
- The report highlights how different courts have developed different practices. The court in Norwich may deal with pensions very differently to the court in London. This is clearly wrong.
As usual, it is important to take expert advice. The solicitors here at bbl specialise in divorce work and we deal with pensions day in, day out. Give us a call if you want to talk this through.
Peter, July 2019