Valuing Pensions on Divorce

A great many people now have a pension, whether it be personal or occupational, and ensuring that they are treated properly when a couple divorce is vital.

Fortunately, long gone are the days when divorce lawyers took a very broad-brush approach, often with the wife retaining the house while the husband retained the pension. This led to significant discrimination in that some women who divorced many years ago still have very little pension provision.

From 1996 you could have a Pension Attachment Order, but these were unsatisfactory and meant there could be no ‘clean break’ divorce. Also, if the person with the pension dies then so does the pension.

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The government was so concerned about the lack of pension provision for women that in 2000 they introduced pension sharing. This is where one person’s pension can be split, with part of it being paid into a pension in someone else’s name. For example, a husband might be in the RAF, with an RAF pension, while the wife has no pension provision. We can now take a percentage of that pension and put it in the wife’s name. Pension sharing is compatible with a clean break and these orders are necessary and popular.

Pension sharing and pensions in general are complex and may come with unexpected anomalies. For instance, a personal pension valued at £100,000 is worth a lot less than an RAF pension with a similar value. The two different pensions cannot be compared directly. This makes it very difficult to advise on an appropriate pension sharing percentage.

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Lawyers are generally not pensions experts or financial advisers, but will instruct specialist pensions experts to prepare detailed reports advising on what pension sharing order would equalise incomes in retirement. These reports are often complicated and come at a cost of around £2,000 plus VAT which is usually shared between the parties. Although this may be off-putting, it is almost always money well spent.  Pensions are often the biggest asset in a divorce and the only way to ensure a fair split of the pension to equalise income in retirement is to instruct a pension expert.

The pensions expert will look at what each pension will produce during retirement. They will then calculate what percentage of one pension should be transferred to a pension in the name of the other spouse to ensure they both have the same income in retirement.

If it has been a long marriage, and the parties are retired or are perhaps in their 50s or 60s, pensions and the options relating to pensions become even more important.

As younger couples become more aware of the need for pensions, and begin growing their pension pots at a much younger age, it may be appropriate to consider a pensions report where the parties are only in their 30s or 40s.

Fraser Dawbarns can advise fully regarding pensions on divorce, pension sharing and instructing pensions experts. For individual advice please contact Rebecca on rebeccawoodley@fraserdawbarns.com or 01366 381818.