When a married couple divorce and look to resolve their finances, pension assets often form a significant proportion of the matrimonial assets. Indeed, it is not uncommon for pensions to form the majority of the matrimonial assets. It is therefore very important for the pensions to be properly considered and for them to be divided fairly in common with the other matrimonial assets. Given the immediate financial pressures that are often caused by a marriage breakdown and separation, as well as the fact that retirement may well seem a long way off, it is unfortunately often the case that a party may not give division of the pension assets the priority that they should. This is one reason why obtaining independent legal advice can be very beneficial, as a family solicitor should always ensure that a person who is going through a divorce considers their long-term prospects, as well as their short-term prospects when seeking to resolve financial matters.
When looking to achieve a fair division of pension assets, consideration will need to be given to whether an expert pension report is appropriate. An expert pension report can be obtained to advise on various matters including (1) the most tax efficient way of dividing the pensions to achieve equality of capital, (2) the most tax efficient way of dividing the pensions to achieve equality of income at retirement, and (3) a fair lump sum that could be paid in lieu of a pension share by way of offsetting. The cost of obtaining a pension report does vary depending on the expert instructed, the number and types of pensions involved, and the number of questions put to the expert, but pension reports typically cost in the region of £1,500-£4,000 + VAT. The cost of this is usually shared between the two parties. While such costs can put people off obtaining a report, consideration does need to be given to the value and type of the pension assets, as depending on the circumstances this can be money very well spent. For example, whereas accurate valuations can often be obtained from the pension provider for defined contribution pensions in the form of Cash Equivalent Valuations (CEV’s), similar valuations for defined benefit pensions can be quite misleading, as the value of the pension may in reality be significantly greater than the CEV indicates.
There will be some cases where a pension report is not required and may in fact be an unnecessary cost. Such cases may include where:
1. The parties are of a similar age and the pensions are all defined contribution pensions that can be easily valued and compared against one another.
2. The total value of all pension assets are relatively low ie. below £100,000 in terms of CEV.
By contrast there will be other cases where it is clear that a pension report would be very helpful and should be obtained. Such cases may include where:
1. There are different types of pensions of significant value that need comparing including defined benefit pensions.
2. It is being proposed that various pension assets be offset against other assets e.g. one party retains more or all of the pensions whilst the other party retains more or all of another asset such as the family home or joint savings.
Historically, pensions have often been overlooked when resolving financial matters on divorce, despite the fact that they often have a high value. It has also been acknowledged that the Courts have dealt with pensions in a different manner in different parts of England and Wales in the past. As a result, a detailed report was published by the Pensions Advisory Group (PAG) in July 2019, seeking to provide guidance to family judges, lawyers and pension experts regarding the appropriate way to deal with pensions on divorce in order to encourage fairer settlements. A full copy of this report can be found at https://www.nuffieldfoundation.org/project/pensions-on-divorce-interdisciplinary-working-group. While it is not possible to summarise all of the recommendations made in the report, what it did highlight was the care that needs to be taken in dealing with pension assets, the numerous factors that need to be taken into account and the importance of obtaining a pension report in appropriate cases.
The recent guidance from the Pensions Advisory Group clearly highlights the amount of thought and care that needs to be given to resolving financial matters where there are significant pension assets involved. In the circumstances we would always recommend seeking advice from a family solicitor at an early stage in such cases, so that careful consideration can be given to the best manner in which to address any pension assets, as well as consideration as to whether an expert pension report should be obtained.
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