Get the Pensions Right

April 3, 2017 by Ailsa Gilhespy

Divorce – get pensions right

It’s possible to overthink some things when getting divorced: for example, painstakingly trying to value all of your house contents is probably a waste of time and money.

 

But not so for pensions- because pensions are complex and can be a much more valuable asset than you may realise- even in a post-Brexit economy.  Only married people and civil partners can share their pensions on dissolution of their relationship.  The Court is tasked with considering whether the pension in those circumstances should be shared.

 

If you are divorcing or contemplating divorce then this is what you need to know:-

 

  • Your’s /your partner’s pensions are likely to be matrimonial assets which can be shared. Clients will often say to me either “He (or she) worked for it and earned it and I don’t want any of it” or “It’s mine because I worked for it-why should I share it?” The Court looks at contributions which include non-financial contributions such as raising children, keeping the house and supporting a partner’s career- in other words marriages are usually a joint effort.
  • Before you make any decisions about whether you want to share or have a share of a pension it is important to get its “cash equivalent value”. This is easily obtained and you are entitled to a minimum of one a year at no cost to you (providing the pension is not in payment. If it is in payment you may pay a fee for the CEV)
  • The cash equivalent value of a pension is not a pound for pound accurate measure of the pension’s value – this is where things get complex and “apples and pears” becomes a good way of explaining why: a personal pension could be considered an “apple” whilst many occupational pensions (in particular public sector and “uniformed” pensions) are “pears”. This is because £10,000 of capital value of a police pension will buy you a whole lot more than £10,000 of a personal pension with, say, Scottish Widows or Standard Life. If there is a choice of pensions to share, and you share the wrong one, both parties may end up worse off than if the right pension were shared.
  • If you and your partner want to come to an arrangement where one of you keeps their entire pension and the other one gets more of the savings or the house – a pound of pension cannot be treated like a pound of savings or a pound of equity in your home so understanding the “offset” value of your pension will be important.
  • The particular rules of different schemes can inform how you should share pensions to both get maximum income from them.

So doing a quick calculation on the back of an envelope risks you losing out on income for the rest of your life at a time in your life when you could need it most – unless you can successfully sue your solicitor for negligence because they did the calculation on the back of the envelope.

A big advantage of dealing with the financial aspects of your divorce in a collaborative process is that it gives you both control. You can ask the advice of a pensions expert who will give you both transparent and even-handed advice about how best to do things to benefit you both as much as possible. You can discuss the pros and cons of the various options with your solicitors and the pensions expert present at a meeting: that makes for faster, clearer, more cost-effective outcomes.

Mary Shaw

David Gray Solicitors LLP

www.davidgray.co.uk