A (short) Guide to the Treatment of Pensions on Divorce The Report of the Pension Advisory Group (PAG) July 2019
The information below is meant as a list of chapters and contents, to give a flavour of the report (as attached ) in case it has not yet been read. The report comprising over 160 pages, is a good practice guide representing the product of two years’ work. It is an in-depth tome, the likes of which probably hasn’t been produced before. The report is concisely written and any attempt to precise it would not do it justice.
PAG consists of 24 members comprising judges, barristers, solicitors, financial advisors, actuaries, pension consultants, and academics. Over 60 other bodies and individuals have assisted by way of contribution or opinion. The joint chairs are Mr Justice Francis and His Honour Judge Edward Hess (joint author of useful practitioner’s guide ‘Pensions on Divorce’).
It is a guide, initially set out in chapters, detailing essential action points (see 2.5), followed by computation of pension assets (see 3.7) and methods of division ad highlighting the limitation of CE figures (important in my view).
Then follows guidance on the treatment of pensions in needs and sharing cases, and whether pensions are treated as deferred capital or income.
Helpful information follows in chapters dealing with pensions fairly on divorce (see 6.10 for examples. Case 5 e.g. suggests seriously considering a report when the CE of defined benefit schemes is between £100,000 - £200,000, citing that defined benefit schemes often undervalue the actual benefits the holder will receive), pension offsetting (see 7.21 for how the overall value of a pension income can be decreased when a pension is split.) and the impact of pension freedoms.
- Taxation is looked at (what is the tax rate if more than 25% is taken tax free) and the importance of State pensions is emphasised (Old state pension, new state pension etc.).
- There is an examination of potential issues, varying an original order and finally a look at international issues.
- P71 contains a glossary and then follows other appendixes at p83 dealing with contested and uncontested cases and who is a pensions expert ?
- Helpfully appendix F contains a specimen letter to a single joint expert.
- Recommendations are given on post order implementation, death in service benefits and self-administered schemes.
- There is a section (app I et seq) about non public sector schemes, underfunding of schemes, the pension protection fund, data and format of reports, seeking a consistent basis of valuation, defined benefits schemes, apportionment of final salary rights, fees and costs, Ogden tables, and finally issues beyond the remit of PAG for the attention of responsible bodies (does that mean Parliament as we see it on TV?)
- Actuaries reports are important to get accurate figures, much in the same way that a financial advisers assessment of a person’s mortgage raising capacity is important. We have all been in cases where the parties simply cannot afford to pay for an actuaries report. If one is ordered by the courts own volition it merely acts as a stick to settle.
The guide really does seem to be the complete ‘one-stop shop’ for anyone seeking the necessary information to deal properly with pensions on divorce. All divorce practitioners should definitely read it.
The financial remedy process is expensive, lengthy and strength sapping for clients. Perhaps when it is known clients have limited funds, then the parties may consider whether a report is needed at an early stage, and apportion funds, even though that may mean less money being spent for example on questionnaires. However each case turns on its own facts.