Pensions on Divorce

The Pension Advisory Group, an interdisciplinary group of family law professionals, including family law judges, barristers, solicitors and pension experts, finally published its report after two years of hard work this month.

The report is intended as a best practice guide for family lawyers and covers issues such as information gathering regarding pensions, pension values, the circumstances in which it is usually necessary to obtain an actuary’s report, what regard should be given to state pensions and more.

The fact that the report runs to 161 pages is an indication of how complex this area of law can be.

The court deals with pensions in two main ways. The court may make a pension sharing order where a percentage of one spouse’s pension is reinvested to produce a pension for the other spouse when they retire. Alternatively, pensions may be dealt with by way of “offsetting”. This is where one spouse agrees to forego a pension sharing order or accept a smaller percentage share in return for a larger share of another asset.

The starting point for looking at pensions is the cash equivalent value of the pension i.e the amount of money the scheme would pay if you wished to transfer your pension rights to a different fund. However, the cash equivalent value does not always reflect the true value of a pension, particularly in the case of final salary schemes.

In many marriages the judge has to consider whether it is appropriate to disregard pension rights which were accrued before the marriage or after the separation of the parties or whether it is appropriate to take the whole of the pension into consideration. In a long marriage the judge also has to consider whether the correct approach is to equalise the current capital of the parties or to equalise their future pension income.

Our Head of Family Law, Joanna Toloczko comments:-

“Very often a pension is the second most valuable asset after the family home and yet I still see a large number of clients who are dismissive of the whole idea of pensions, thinking that they are only relevant to older people or that they are not worth bothering with because they are only predicted to produce a modest income upon retirement.

The reality of the situation is that everyone would be well-advised to take pensions into consideration when dealing with a financial settlement on divorce.

It is about time that family law practitioners had some good quality guidance on dealing with pensions on divorce and I intend to study the contents of the report carefully so that I am best placed to provide my clients with the most up to date guidance on the subject.”

For advice in connection with all Family Law matters please contact Joanna on 020 3861 5155 or at jtoloczko@meaby.co.uk.