Treatment of Pensions on Divorce

Posted on 17 January 2020

Treatment of Pensions on Divorce

The Pension Advisory Group has published its Guide to the Treatment of Pensions on Divorce. This comprehensive guide, the result of some two years' work between academics, solicitors, barristers, judges and financial experts on pensions on divorce issues, seeks to provide guidance to the legal profession, judiciary, pension experts and parties on the treatment of pensions on divorce (and the dissolution of civil partnerships).

 The report makes clear that "Ignoring pensions or agreeing to ignore the pensions is not an option." It sets out circumstances where an expert valuation report is likely to be necessary, matters on which an expert should and should not advise (e.g. whether there should be a utility discount, which has often previously featured in valuation reports) and considerations for how best to deal with pensions as assets on divorce. It notes that the treatment of pensions "might be seen as the last area of unintended discrimination against wives on divorce."

The risks of offsetting pensions (described as "the dominant practice") are highlighted. Unless the non-pension assets are of a level that eclipse the pension, an expert valuation is likely to necessary whenever an offset is considered. The Pension Advisory Group further takes the view that, contrary to some of the recent caselaw, achieving equality of pension income will often (albeit not always) be a fair result. The report examines differences between many common types of pension, highlights tax issues that practitioners should be mindful of, such as the Annual Allowance, Money Purchase Annual Allowance and Lifetime Allowance, and notes pitfalls arising from the pension freedoms created by the Taxation of Pensions Act 2014.

Barbara Reeves notes: "This report is a welcome resource for lawyers, clients and the judiciary alike. Too often, parties understandably concerned with the immediate financial fall-out from divorce neglect to give pension assets proper consideration. Research by the Pensions Policy Institute indicates that, in their early 60s, the median private pension wealth of women is one third of men's private pension wealth.  This report not only helps demystify the rationale behind and process for sharing pensions on divorce, but reminds lawyers and judges of their own responsibilities to consider pension resources when reaching financial arrangements on divorce. It remains important for there to be greater public awareness of the importance of considering pension assets on divorce and the risks of foregoing valuable pension rights for the sake of assets that might seem to be of more immediate benefit".  

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