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The Pension Advisory Group – Interim Reports and Conclusions

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A must-know for family finance practitioners whenever pension assets are considered, the PAG are producing guidelines to assist in the understanding and management of pensions in the context of divorce. Matthew Richardson summarises the group’s presentation of their progress to date, and identifies some key recommendations and top tips for practitioners.

By: Matthew Richardson

19 May 2018

The PAG’s project – supported by the Family Justice Council and the President of the Family Division – is to produce guidance on pensions on divorce, and in April 2018 their interim reports were published. On 18 May 2018 the interim reports were presented at the group’s first public meeting, where a panel of PAG members discussed the work done so far.

For many family finance practitioners pensions is a topic that induces a consistent range of reactions that ranges all the way from fear and loathing at one end of the spectrum to more fear and more loathing at the other. This is perhaps unsurprising when one considers that we have had pension sharing since 2000 (following the Welfare Reform and Pensions Act 1999) but in the 18 years that pension sharing orders have been made, there has been no regulation or guidance to assist with how and why to make them.

Fear not – the PAG is here to save the day. An experienced group of practitioners from a diverse set of backgrounds has been giving careful attention to the production of guidelines to assist in the understanding and management of pensions in the context of divorce.

Two draft reports have been published – one that deals with valuations and experts and the other addresses legal issues. The aim is to generate guidelines to help experts achieve consistency in how they value pension assets (it being noted that at the moment there is a huge variation in what different pensions experts will say about the same pension assets, and in what answers they give to questions about those assets) and to help lawyers give consistent advice about how to deal with pensions as part of the division exercise.

Together they form a hugely useful guide on how to understand and manage pensions assets, not just by themselves but in the wider context of the family finances as a whole.

The reports are linked to above and are highly recommended, and some key recommendations and top tips – collated here under the three headings ‘experts’, strategy and implementation’ and ‘offsetting’ – include:

Experts

·      The PAG considers £100k in pension asset value the level above which it becomes highly advisable to get an expert report

·      There’s a new acronym on the horizon – PODE – pensions on divorce expert. PODE is suggested as the preferred term to SJE because it is more descriptive.  Use of the broad term ‘expert’ is deliberate because the experts working in this area come from a lot of different backgrounds, for example actuaries, financial planners and IFAs.

·      A PODE report should present fact and calculation rather than opinion – the latter being impossible where the expert will necessarily not have a complete picture of the facts of the case. ‘The role of the PODE is not to recommend an answer, which is for the parties, or ultimately the court … FPR PD25B 9.1(g) enjoins experts to state the range of opinion’ [Valuation report para.56]

·      There is a draft LOI to the PODE included at appendix 1 of the legal report

Strategy and Implementation

·      When looking at equalisation of pensions, one should usually aim for equalisation of income, not of capital

·      Always check if a pension is a defined benefit scheme – and note that CEs are not representative of value in such schemes

·      Never ignore state pensions – note that they ‘can often be one of the most valuable assets in a divorce’ – and always consider the valuation of state pensions

·      The timing of Decree Absolute is critical and a ‘bear trap’ that people fall into. Absent other compelling reasons for doing so, don’t apply for DA until 28 days after the pension sharing order has been made in order to protect the death in benefit

·      Make sure that the pension sharing order is served and that the pension provider(s) acknowledge receipt, and acknowledge that the terms of the order are understood and accepted

·      To avoid an aggrieved party causing problems with implementation (and delay is a key cause of problems) include undertakings in consent orders that both parties will pay the implementation fees

·      The key forms used in family finance cases (Form E, Form D81, Form P) need to be updated. Notably, for example, Form E doesn’t have a box for the new state pension information, but it is very important. Form D81 (statement of information to support a draft consent order) is even more lacking. The PAG recommends changes needed to the forms [page 79 of the legal report] so that more and better information is obtained and provided, and in the meantime consideration of these recommendations can help practitioners consider how best to amend and/or annex the current forms so as to ensure this vital pensions information is still included.

·      Apportionment arguments (i.e. suggesting that only the part of the pension value accrued during the period of marriage should be considered) are ‘not likely to be helpful’ in a needs case and should only be done where assets exceed needs

Offsetting

·      Offsetting (one person taking more non-pension assets whilst the other takes all or more of the pension(s)) is the most common form of pension resolution.

·      Be very careful if you’re considering offsetting as opposed to sharing – there are increasing numbers of negligence cases relating to pensions being brought against family lawyers and they are all based in problems with offsetting

·      George Mathieson (expert at Mathieson Consulting Ltd) suggested that offsetting is so consistently treated improperly that often the person getting capital in lieu is getting short changed. In relation to which Joanna Miles (Reader in Family Law and Policy, University of Cambridge) suggested this may be a hidden but significant way in which our system still perpetrates a level of discrimination against the party to a marriage or civil partnership who has the lower earning power.

Feedback to the PAG

The PAG actively seeks feedback, principally via email to Hilary Woodward at woodwardhd@cardiff.ac.uk, and further details of how to provide it can be found here. Questions are posed throughout the reports and answers to some or all of them are invited, as is feedback more generally on what could be clarified and/or added to what is drafted. There will also be an online survey posted in due course.

The current due date for the final reports is the end of 2018.

Matthew Richardson

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