Often when couples divorce, they think about what will happen to the house or who will receive what from any savings or realisable investments and pensions are overlooked. However, in many cases that I have dealt with the pension of one or both of the parties is actually the most valuable asset and there are a number of ways that pensions can be dealt with upon divorce.
Sometimes, the simplest and least expensive option is to offset the pension so one party keeps their pension fund in tact on the basis that the other has more of the other assets such as the equity in the home. Whilst this course of action avoids the often substantial fees of one spouse taking a share of the other’s pension, it is not always possible to offset where there are not sufficient assets elsewhere. A second option is for one spouse to take an “attachment order”. This means that the receiving spouse will receive part of the pension holder’s income or cash lump sum upon retirement. This option can be fraught with problems and is rarely used. The third option is known as a “pension sharing order”. This is where a pension is effectively split in a way which is either agreed or ordered by the Court. The person receiving the benefit of a pension sharing order will take their percentage and place it into a fund for their own benefit upon retirement.
In terms of pension sharing orders then the difficulty in years gone by has been calculating the percentage of the pension that should be taken. It is not uncommon for one party (often the wife) to ask for a pension sharing order that would give her equal income to that of her husband upon retirement. The difficulty with this is that because women have a longer life expectancy they have to receive more than 50% of the pension fund to give them an equal income for their anticipated longer life.
Family lawyers are not qualified to calculate the percentage that should be taken to achieve income equality in retirement which means that in many cases, a pension expert has been appointed to prepare a lengthy actuarial report at significant cost to the parties to determine the correct figure. The recent case of SJ v RA (2014) EWHC 4054 (Fam) considered whether these calculations, which often led to a wife receiving more than 50% of her husband’s pension fund to achieve equal income, meet the principles of fairness, equality, needs, sharing and compensation.
In the case concerned the couple were in their 70’s and had been married 43 years. They had substantial pension assets between them, the husband’s funds were worth £1,865,430 and the wife had pension funds worth £753,000.00. The wife argued that she required a share of the husband’s pension that would give her and her husband equal pension income upon retirement. As above, this would have meant that she would receive an enhanced sum on the basis that she was younger than the husband and on the basis that she was female.
The Judge said that he felt this approach to calculating what pension sharing order should be made was “unfair and anachronistic in a case where assets exceed the parties’ needs.” The Judge also referred to the recent changes in pension regulations which mean that pension investments are virtually treated like bank accounts for persons over the age of 55, as the parties were in this case. The Judge felt that it would be “unacceptable discrimination” to give the wife more than the husband on account of her age and gender but he did qualify his comments to say that his views might have been different had the case been dictated solely by the needs of the parties.
This means that in the majority of cases there will no longer be a need for the parties to pay a pensions expert to prepare an actuarial report to work out how the fund should be divided to achieve equality of income. The Judge in this case went on to split the pensions merely by reference to their values as opposed to looking at the future income stream but it should be noted that he felt able to do this in this case because of the changes which no longer force a person to buy an annuity and because there were more than enough assets to meet the parties’ needs.
Pensions are a complex area of divorce law and just because the pensions were split in this way in this particular case that does not necessarily mean that will happen in each and every case as each case is determined on its own merits. If you would like further advice concerning resolving financial matters within the course of divorce proceedings please do not hesitate to telephone our offices to make an appointment.
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