Since its release in early July the advisers here at BlueSKY have been busily picking their way through the recently published Pensions Advisory Group (PAG) Report, A Guide to the Treatment of Pensions on Divorce.
As background, many of you will know that the PAG comprises of actuaries, solicitors, barristers, IFAs, academics and other specialists operating in this field. The aim of the report was to provide comprehensive guidance on how pensions on divorce should be approached and sought to bring clarity to traditionally thorny areas such as pension offsetting, State Pensions and many more.
Our initial thoughts on the document are extremely positive and we welcome the clarity that the guide provides. In the coming months we aim to write in greater detail about many of the key topics discussed in the report and we also plan to roll out training events and seminars (see later in the article for how to sign up). For now, this article intends to provide ten key ‘takeaways’ from the report to whet your appetite!
1. Know your PODE
The report introduces a new acronym into the lexicon – PODE or Pension on Divorce Expert. A PODE could be an actuary or an IFA who specialises in this field. PODEs need to be able to certify that they have the necessary range of skills. There is no professional qualification or regulatory system for PODEs but you will all be familiar with experienced practitioners in this field. As for IFAs who might be able to help with your cases, look for Chartered Financial Planners where someone in the firm holds a Resolution Specialist accreditation.
2. Know what information is required
The report provides a very comprehensive guide to what information is required about a client’s various pensions to enable a decision to be made as to whether a Pension Expert Report needs to be requested. For many pensions, the information required will be fairly straightforward, but there will be instances where the information needed will be complex. As this is outside your ‘day job’ you may wish to speak with a PODE to find out if the information collected so far is enough or whether further information needs to be obtained. A discussion will also assist in determining whether a Pension Expert Report is required.
3. Beware of elephant traps!
Pensions are complicated and the rules governing pensions in recent years have become even more complex. Again, being aware of when you need to speak with an expert could prevent fallout in the future if you didn’t pick up on a specific issue at the time. In particular, defined benefit schemes and pensions in drawdown are to be looked into in great detail.
4. Should I get a Pension Expert Report? (Take 1)
The PAG Report makes it clear that “ignoring the pensions or simply stating on the D81 that the parties have agreed to ignore the pensions is not an option”. However, that is not to say that a Pension Expert Report is required every time. If you advise your client to obtain a report and they decide not to do so you should keep a record of the file of the advice given with reasons, signed by the client.
5. Should I get a Pension Expert Report? (Take 2)
The PAG report sets out several common scenarios when an expert’s report is unlikely to be necessary, for example a young couple of similar age with little pension accrual. But, as mentioned earlier, pick up the phone and discuss the case with a PODE if you are unsure on this point.
6. To include pre/post marital pension accrual?
The PAG Report is quite unequivocal here, as it states that most divorce cases are ‘needs’ cases and further states that “Apportionment is not usually relevant in a ‘needs’ case.” Currently, we are seeing a lot of instructions requesting calculations which both include and exclude pre/post marital assets. This makes issues more complex, increases timescales and, ultimately, results in a higher cost. So, it is important to understand whether it is absolutely necessary to request a report on each basis.
7. Why CEs can be misleading
Again, this is quite well-trodden ground, but it is always worth highlighting. The CEs (cash equivalents) quoted by Defined Benefit (DB) schemes do not bear any relationship to the income that the scheme will pay on retirement. Two DB schemes offering the same pension per annum may offer wildly different CE values. Therefore, extreme caution needs to be exercised when comparing the CE of one pension scheme with another.
8. State Pension
The guidance from the PAG Report is that information on the State Pension should be obtained in all circumstances. State Pensions can represent a very significant proportion of a couples’ joint pension assets. Completing form BR19 and BR20 “is the most reliable way of obtaining a full picture of an individual’s State Pension entitlement”. Of course, obtaining the information in a paper-based format from the Future Pension Centre will take time so will lead to increased timescales when a report is required. However, in doing so, it will ensure that the most comprehensive picture of a couple’s total pension accrual is achieved.
9. Writing a clear Letter of Instruction
The findings from PAG were that this was a key area where improvements need to be made. Quite often the letter of instruction was asking for too many calculations, or even the wrong type of calculation. Included in the PAG report is a specimen letter of instruction which could be used when instructing a joint expert and provides useful pointers around such issues as retirement ages to be used, offsetting calculations, and lifetime allowance implications.
10. When to close the file
The report makes it very clear that you should not close your file until you are certain that the order has been implemented or the client has given clear instructions to retain responsibility for implementation. There is likely to be the need to liaise with a financial planner at this stage as it would be prudent for the claimant to receive financial advice to ensure that the funds resulting from the pension sharing order are invested correctly and in accordance with the claimant’s wider financial aims and objectives.
In summary, the PAG report provides a goldmine of information in the area of pensions on divorce and provides great practical guidance and clarity on many issues.
Over the coming months we aim to run a series of seminars and in-house training sessions for solicitors which focus on all these areas and many more.
If you would like to register your interest to attend one of our seminars or would like to request some in-house training at your firm please email email@example.com or call us on 0118 987 6655.