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Pensions might be boring to some but they become distinctly less boring as retirement age approaches. Pensions also tend to become a major focus of attention in divorce proceedings. The desire for a decent income in retirement will be shared by both parties involved in a divorce. This guide gives a brief overview of how lawyers and the courts approach the issue of pensions on divorce.
A common issue which arises within divorce proceedings is if and how a pension should be divided. It will often be the case that one spouse will have a considerably larger pension provision than the other. The job of the courts is to determine whether and how this imbalance can be dealt with in order to achieve fairness between the divorcing parties.
The pension can be a difficult asset to deal with on divorce given the issues which arise on trying to place a value on it. The figure used in order to make the necessary calculation is the Cash Equivalent Transfer Value (CETV) which is the figure the pension provider could transfer to another pension fund. However, the CETV does not always reflect the real value of the pension and sometimes understates the value of the benefits. Therefore, it is often advisable for a report to be provided by an actuary so that the real value of the pension may be ascertained, along with the anticipated value on retirement. It is the case that women on average live longer than men and this usually means that the same CETV will produce a lower pension for a woman than for a man of the same age.
We would strongly advise that an actuarial report is produced where the pension is an armed forces pension, police pension or teacher’s pension, as well as other types of occupational or final salary pension.
Once the calculation has been established, consideration needs to be given as to how the pension will be dealt with. Often a wife will want to retain the family home and the husband may agree to this on the basis that his pension is untouched. This can work and produce a fair result. However, this is not always the best way forward as the wife may be left having to sell the family home when she reaches retirement age because she has insufficient pension provision of her own.
On 1 December 2000 the Welfare Reform and Pensions Act 1999 came into force. This allows the courts to divide a pension between husband and wife. The Civil Partnership Act 2004 allows the Courts the same power in relation to civil partners. Such a division is known as a “pension sharing order”. A pension sharing order can only be made on a decree of divorce, dissolution or nullity.
The pension sharing order will provide for a specified percentage of the CETV to be transferred into a fund in the name of the wife (or husband if the pension provision is held by the wife).
An alternative to a pension sharing order is an attachment order. An attachment order will compel the pension trustees to administer the fund in a particular way, so that the wife (or husband) is provided with an income from the fund or with a lump sum when the fund matures. This may be helpful in a situation where the monies that will be paid to the parties via a pension share may be substantially lower than if the party with the pension pays maintenance. The disadvantage for the husband will be that the wife may apply to the court to vary the amount paid. The disadvantage for the wife is that the attachment dies with the husband. An important point to note is that it is not possible to attach and to share the same pension.
It may not be much of a surprise that pensions can and often do become the most complex aspect of a financial dispute on divorce and careful consideration must be given at an early stage as to what to do with this complicated asset. Legal advice is strongly recommended and our specialist lawyers at Field Seymour Parkes will be very happy to assist you.