09 August 2019
The Pension Advisory Group was set up to review how pensions are dealt with on divorce. Their report was published in July 2019. The purpose of the review was to consider how pensions should be dealt with on divorce and to ensure that they are dealt with fairly.
When a couple are going through divorce proceedings it is essential not to overlook pension benefits. They should be properly considered and valued. The relevant value in divorce proceedings is known as a Cash Equivalent Transfer Value (“CETV”). This is the capitalised figure given to a pension obtained from the pension companies. The pension companies complete forms to provide all the relevant information. There also may well be tax issues to take into account, depending upon the type of pensions. If pension funds are drawn down adjustments may be necessary depending upon what rate of tax is payable.
It might be necessary to get an Actuarial Report depending upon the type of pension and the value of both parties’ pension funds. This is a detailed report from an expert to provide guidance and an analysis of a couple’s pensions. They consider the requirements to either give each of them the same income in retirement or to share the capital values of their pensions.
The Pension Advisory Group's guide to the treatment of pensions on divorce sets down very helpful guidance, both to solicitors, couples going through divorce proceedings, Independent Financial Advisers (“IFA’s) and Actuaries.
The two main options are Pension Sharing and Offsetting.
Pension Sharing is when the party who has lower pension values receives a share of their former spouse’s pension. Depending upon the type of the scheme, the pension fund may need to remain where it is, which is usual in Public Sector pensions. Or it may need a transfer to a separate fund outside the main pension scheme. We recommend that you take advice from an Independent Financial Adviser.
You must consider the charges for implementing the Pension Sharing Order. Some of the schemes can charge high fees for the implementation of a Pension Sharing Order. Such charges are usually shared equally by the parties. Some companies may be willing to deduct their charges from the parties’ respective shares of the fund. However, not all schemes will agree to this and it is in the discretion of the pension administrators.
Offsetting is where one party receives additional capital assets to compensate them for loss of pension rights.
You should not ignore State Pensions. You should get details of what you are likely to receive at State Retirement age and to clarify when that will be. It is also important to check whether there is a capital value attached to the additional State element of your pension. If so, how much does this amount to? You can get all these details by completing Forms BR19 and BR20 which are on the Government website GOV.UK.
Pensions are a complex area. When contemplating how to meet the needs of both parties they should be considered in conjunction with all other assets.
It is essential when going through divorce proceedings that pensions are not overlooked. They should be properly valued and dealt with as part of an overall settlement. Consider taking professional advice from solicitors, Independent Financial Advisers and in some cases from an Actuary.
This is not legal advice; it is intended to provide information of general interest about current legal issues.
If you would like more information about pensions on divorce please call one of our expert lawyers based at our Bournemouth and Highcliffe offices.
