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• Author: Ray Brownson

Pension sharing on Divorce

Property prices are a national obsession. Pensions are not regarded by the public in the same way, but it can often be the case that one spouse has a pension that has a significant value. The value of a pension fund can equal, and sometimes exceed, the net value of the matrimonial home. Of course pensions are not ready cash or an asset that can be sold for ready cash. It is also the case that in the UK we have one of the most complex pension systems in the world. We can only look with quiet envy at pension schemes available in some countries on the continent.

Since 2000, the divorce courts have had an express power to make pension sharing orders (“PSO”). In April an academic study by Woodward & Sefton of Cardiff University and the Nuffield Foundation was published, which you can download, called “pensions on divorce: an empirical study”. It looked at how and when pensions were taken into account in divorce.

It is a lengthy study and the first of its kind since the introduction of PSOs more than a decade ago. It considered 396 cases from unnamed courts in the North, South and West of England & Wales over an eighteen month period from April 2009 to the end of 2010. Only 14% of these cases recorded a PSO. It is important to note at this point that the overwhelming majority of financial orders on divorce are made by consent. Only a tiny minority of divorce and financial cases go to a trial, around 1.2% nationally. PSOs are only available to divorcing couples; they are not available to unmarried couples who are separated. A pension can only ever be held in one individuals name and can only be adjusted on divorce when there is this court order. Any pension, except the basic state pension, can be subject to a PSO.

So, in what cases were PSOs made? These orders were made in cases where the parties had been married for longer than the average marriage length, at 25 years, and where the spouses were older; on average 51. The value of the pensions was, on average, £290,000.00 and the non-pension assets £329,000.00. So, the orders that were made were for a relatively small and relatively wealthy group. It is also the case in the study that the PSOs were almost universally in favour of wives. At first sight, this might appear a gender imbalance. The study records that, for the most part, it is the husbands who have pensions and so in the 86% of the cases where there were no PSOs the husband retained those pensions. It must be said that some 20% of the cases recorded no pensions at all.

The study highlights that the alternatives to PSOs are often relied on. The most common option is called offsetting. A common scenario is that the wife may get more of the matrimonial home and abandon any claim against the husband’s pension. In fact, there is very little judicial guidance in this area of finances on divorce. Pension valuations are not the same as savings, shares or property and so a £50,000.00 pension fund is not in the same as £50,000.00 in an ISA. Great care therefore needs to be exercised if offsetting is to be considered.

In their study the academics were assisted by an unnamed pension expert. He expressed concern about the quality of the pension disclosure in many cases. The pension expert also thought that the lawyers and their clients would benefit from independent expert advice but, the difficulty in this respect is that such advice is often expensive as it is usually provided by actuaries.

PSOs are an important remedy on divorce even if they are not used that often. Pensions should always be considered, except where there has been a relatively short marriage or the parties are particularly young. Sometimes the parties simply do not have any prior pension provision and so there can be no PSO. In my view, it cannot be right that these orders are the prerogative of a relatively privileged minority. Although it is not in the study, we are told generally that most people expect an income of about £20,000.00 on retirement. The basic state pension is currently just under £8,000.00 and so one has to ask where the balance of £12,000.00 will come from? For divorcing couples the PSO may be one answer.

The study also highlighted that the costs of implementing pension orders have increased dramatically.