When couples separate, the family home aside or perhaps even including that, the pension pot of one spouse or the other or sometimes both of them is often the biggest asset of the family. In an age when we are told that we must save for our retirement and are almost always opted in to work place schemes, pensions should always be considered on separation and divorce.
The division of the pensions...
It is surprising therefore that it is only in the last twenty years or so that the family courts on divorce have been able to deal with the division of the pensions directly rather than offset other assets against them. On divorce now, two specific orders are available – pension sharing orders and pension attachment orders. Pension sharing orders deal with the division of pension funds between spouses at divorce; pension attachment orders at retirement.
What is the most common way of dealing with unequal pensions?
However, even now the most common way of dealing with unequal pensions is to seek to offset the difference in values against other assets, meaning that usually the spouse with the greater pension will give up some or all of their entitlement to another asset, usually the family home or savings or investments, in exchange for leaving their pension untouched.
This approach is commonplace because it is seemingly straightforward and is unlikely to involve the need to other use other experts to value funds properly, and to pay their fees and those to the pension fund trustees to move investments around.
Also, even if pension sharing orders or pension attachment orders are made, they are based on the value of the funds as given by the pension provider and straightforward calculations made dividing the funds between them in specific percentages. This too can be inexpensive.
Both approaches should come with ‘health warnings’ and be treated with caution.
The Pension Advisory Group Report July 2019
In July 2019 the Pension Advisory Group (PAG) published a report – the ‘A Guide to the Treatment of Pensions on Divorce’. The purpose of this was to assist legal and other professionals and the public alike with how to navigate the minefield of pensions on divorce. The Guide contains a very detailed summary of the options available to separating and divorcing couples and as importantly highlights potential difficulties and pitfalls.
Professional Advice
As the Guide sets out, whilst the simple and inexpensive routes may at the time of divorce be the best route to take, it is often the case that at retirement and therefore possibly many years down the line, the real value of lost pension benefits becomes known and sometimes results in real inequalities and unfairness. This is because the stated values of pension funds sometimes do not give the true value of the benefits the funds will produce at retirement or do not take into account other factors such as the ages of the parties or specific health considerations that can affect the calculation of what should have been shared. There may also be taxes to consider and pay.
In an area where there are so many potential pitfalls and we are being warned by the media about mis-selling of pensions, there can be no substitute for advice from a family lawyer with experience of dealing with pensions. An investment in sound advice at this stage may well produce significant benefits in later life and be a great investment itself!
