When couples divorce, pensions are often one of the most complicated assets to deal with. Very often one spouse has a much larger pension provision than the other, particularly where one of the parties has taken time out of work to raise children. Sometimes, it may seem as though each spouse has a similar amount of money in their pensions, but because of the type of pensions they have, the values can be misleading.
Finding a fair and sensible way to deal with any discrepancies in the pension provision, is not always straightforward. The first step is to work out how much money is held in pensions. This is usually done by obtaining the cash equivalent value (CEV) from the pension provider. This is not necessarily the same figure as the current capital value of the pension, which may be the figure that appears on the annual pension statement.
In some cases, even the CEV does not properly reflect the value of the pension. This is particularly the case where there is a public pension e.g. with the police or the NHS. Where there is any ambiguity about the value of a pension, your solicitor may need to instruct a pensions’ actuary, who can provide proper advice as to the value.
Once the value of the pensions has been determined, this must be considered along with all of the other relevant factors such as the type of pensions, the age of the spouses, the length of the marriage and the value of the other assets in the marriage. Taking all of this into account, it may be appropriate to:
1. Divide the capital value of the pensions under a Pension Sharing Order so that each person has the same or other agreed amount of money in their pensions;
2. Divide the capital value of the pensions to give each person the ability to generate a similar amount of income from their pensions, under a Pension Sharing Order;
3. Share the actual income on retirement, under a Pensions Attachment Order; or
4. Make no adjustment to the pensions but for one person to receive more of the other assets in the marriage to compensate them for having a smaller pension.
Each of these options has advantages and disadvantages and it is important to take professional advice before entering into any kind of agreement in relation to pensions. This is a complicated area and without advice it is all too easy to reach an agreement that appears to be very fair but that could leave one person seriously disadvantaged in the future. Recent changes in the rules on pensions add additional considerations.
We can provide you with advice in relation to all aspects of pensions on divorce and we have access to pensions’ actuaries who can provide specific advice to ensure that any risks are shared and that your future is as secure as possible.