The Pension Advisory group is a multi-disciplinary group that provides updates and refines previous guidelines to reflect new case law, feedback and changes in the pensions landscape since 2019.
It is designed to aid legal professionals and judges in handling pension issues in divorce cases, thereby ensuring fair and informed decisions regarding pension settlements.
Current challenges and the reason for updated guidance
Despite the introduction of pension sharing over two decades ago, legal and financial professionals, and the judiciary still struggle with the complexity and regulatory diversity of pensions.
Limited higher court guidance and inconsistent judicial decisions exacerbate these challenges, particularly in modest asset cases where pensions are often a significant component.
Despite concerns about the fairness and risk of undervaluing pensions, Offsetting continues to be a common remedy, despite concerns.
- Offsetting: this is a financial remedy where ones spouse’s pension rights are traded or ‘offset’ against other matrimonial assets such as property or cash to fairly distribute the total assets
The PAG2 report attempts to explain some of the matters which family lawyers dealing with pensions on divorce should know.
Key recommendations set out in the report
- Comprehensive information gathering: practitioners must ensure a thorough assessment of all pension assets, including less obvious components such as death benefits and guaranteed annuities.
- Valuation guidelines: Courts typically focus on pension rights accrued up to the hearing date and rarely consider future entitlements. Lawyers must recognise the limitations of Cash Equivalent (CE) figures, as their divorce-related value may differ significantly between Defined Contribution and Defined Benefit schemes.
- needs-based cases: In cases where pension assets represent a substantial share of the total assets, practitioners should prioritise equitable income division. Expert evidence may be required to analyse these cases appropriately.
- Offsetting methodologies: When offsetting is used, methodologies like the Galbraith Tables can help evaluate fair compensation, ensuring that pension entitlements are not undervalued.
Importance of Expert Input
- Role of PODEs: The role of Pensions on Divorce Experts (PODEs) is critical in many cases to provide clarity on pension valuations and ensure fair settlements.
- Challenges with PODE Usage: Convincing participants to incur the costs of a PODE report can be difficult, but the financial and and legal consequences of errors in pension valuation highlight the importance of their role.
Technical and tax implications
- Tax implications: lawyers should address taxation issues, including the impact of Lifetime and Annual Allowances, even as the regulatory landscape evolves. PODEs should be able to provide guidance on these matters.
- State pension entitlements: understanding how state pension entitlements interact with divorce settlements, especially in low-income cases, is essential to avoid complications with means-tested benefits.
- Complex scenarios: Practitioners must remain vigilant for technical challenges such as age gaps, public sector scheme intricacies, and valuation issues. International cases and underfunded schemes may require tailored approaches and expert input.
- You can find the report here :-chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.nuffieldfoundation.org/wp-content/uploads/2023/A-guide-to-the-treatment-of-pensions-on-divorce-2nd-edition.pdf