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Key recommendations in the Pension Advisory Group report
Jul 17, 2019, 10:18 AM
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Hilary Woodward, honorary research associate at Cardiff School of Law and Politics and project lead for the Pension Advisory Group, and Debora Price, professor of social gerontology at the University of Manchester and Pension Advisory Group member, explain the key issues identified by the group in its guide to the treatment of pensions on divorce, and summarise the main recommendations and what steps practitioners should take to ensure that pensions are dealt with consistently.
What is the main purpose of the report?
The Pension Advisory Group was set up in mutual recognition of the urgent need for interdisciplinary discussion between lawyers, actuaries and financial advisers to achieve better common understanding and consistency in cases involving pensions on divorce.
Pensions are often the single largest asset after the family home for divorcing couples, yet there is inconsistency of approach to pensions in divorce cases across England and Wales and a considerable shortfall in understanding. Divorcing spouses are often unaware of their rights and still less aware of how to begin to approach the issue of a fair split of pension assets. Lawyers also often lack confidence in this area. The matter is further complicated by repeated changes in the law governing pensions, such as pension freedoms and the lifetime allowance which have fundamentally altered the landscape in this area.
Francis J and HHJ Hess were appointed as co-chairs by Sir James Munby, the then President of the Family Division, and they convened this multi-disciplinary group of leading experts, practitioners, judges and thinkers in the field to deliberate on these difficult issues. Endorsed by the Family Justice Council and the President of the Family Division, the Pension Advisory Group Guide to the Treatment of Pensions on Divorce will act as formal guidance to be applied when any issue regarding a pension falls to be determined in financial remedy proceedings. We hope that the report will assist and clarify the difficult process of incorporating pension considerations into financial remedies cases in a way which is procedurally and substantively fair to the parties. The guidance aims to de-mystify this area and establish clear ground rules for the proper approach to be taken in every case.
What were the key issues identified by the Pension Advisory Group?
The key issues identified are that:
pensions are considered in far too few cases
they are little understood
valuations are often needed but not obtained and when valuations are obtained they are too complex, and
there is a wide variation in how pensions are approached
Furthermore, the parties and the court often lack sufficient information to make a fair assessment and settlements are made without enough thought being given to pensions. In short, this area of law and practice is not operating as well as it should and many people, mostly women, may be missing out on pension entitlement following divorce.
What are the main recommendations in the report?
The project aims to make a major improvement to the practice of pensions on divorce, especially in cases where the couple have modest means and where a house and pensions are likely to be the main assets to be divided. The main point of the report is that ignoring the pensions, or simply agreeing to ignore the pensions, is not an option. Recommendations include:
how to gather information about pensions and what information to gather
how to decide when the cash equivalent (CE) value is sufficient or when expert advice may or may not be needed
who might be a pension expert and how to write the letter of instruction
advice for experts on consistent bases for the valuation of pensions and what the expert report needs to contain
the current expert consensus on the right legal approach to sharing pensions in different kinds of cases
complications that can arise, especially when valuing and sharing defined benefit and public sector pension schemes
the impact of the 2016 pension ‘freedom’ reforms
tax issues that arise, and
how to deal with overseas pensions or overseas court orders and a range of other potentially complicating factors including issues that arise on implementation of orders
What are the essential action points?
Most importantly, the right information needs to be gathered and considered appropriately and fairly. The reasoning in reaching the agreement or court order should be documented, so that it is clear what each party is retaining, acquiring or transferring.
The essential stages of a typical case include:
gathering information on all of the client’s pensions, using Form P for non-state pension entitlements and completing online requests of the Department for Work and Pensions using forms BR19 and BR20 for state pension entitlements
comprehensively considering a range of potentially complicating issues (26 such issues are listed)
validating the reasonableness of any potential valuations obtained, given what is known about employment histories and pension memberships, and
serving copies of applications on pension trustees where required
Parties need to evaluate whether a pensions on divorce expert should be instructed, considering these investigations. An expert is normally instructed by both parties as a single joint expert. Experts need to be able to certify that they have the necessary range of skills and parties need to ensure compliance with requirements as to the instruction of experts. A template recommended letter of instruction is provided in the report.
Complicating features that clients need to be advised on include:
risks relating to certain types of pensions
benefits lost on pension sharing
moving target syndrome
destination funds for pensions shared and whether independent financial advisor (IFA) advice may need to be sought for the client
pension annexes and Form D81 (Statement of information for a consent order in relation to a financial remedy) must be correctly completed and it is good practice to set out the pre-and post-pension share financial positions and justification for any offset in or with the Form D81
pension administrator approval must be sought prior to the submission of paperwork for pension attachment orders and it is good practice to do so for pension sharing orders—the parties will also need to determine who is going to pay the administration fees for any pension share
specific thought needs to be given to the timing of the decree absolute, and
prompt implementation must be ensured and outcomes reported to any expert if an order is made following a hearing
Parties also need to have clearly understood:
the implications of pension freedoms
complications that arise with final salary schemes
unfunded defined benefit schemes
closed schemes and additional voluntary contributions (AVCs), and
the value for divorce purposes of public sector pensions
What do you hope practitioners will do differently going forward?
The aim of this guide is to help judges, lawyers, actuaries and financial services practitioners navigate their way with more confidence through the tricky field of pensions on divorce and ultimately improve the fairness of outcomes for those going through divorce. We hope in due course to produce an accompanying guide to assist divorcing parties and litigants in person.
Interviewed by Geraldine Morris, solicitor and head of Lexis®PSL Family.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
This News Analysis was first published by LexisPSL Family. Click here to request a free one week trial.