Why your clients might not need to speak to a pension expert on divorce

We’ve been called a lot of things in our time, but now there’s a brand-new acronym to add to the list. According to the Pension Advisory Group (PAG) Report, we’re henceforth also to be known as PODEs – ‘Pension on Divorce Experts’.

The recent PAG paper, A Guide to the Treatment of Pensions on Divorce, is a comprehensive, 176-page report reflecting wide deliberations held over the last couple of years. As specialists in this area, we’ll be providing summaries of this report over the next couple of months, as well as running sessions to share the main findings of this major consultation into pension sharing on divorce.

Ahead of these sessions (which qualify for CPD), there was one thing we learned from the report which we’d like to share with you now.

A Guide to the Treatment of Pensions on Divorce

The Pension Advisory Group (PAG) is a multidisciplinary group of professionals specialising in the field of financial remedies and pensions on divorce.

The group was formed in June 2017 to improve understanding of the complex area of law relating to pensions on divorce and enable more consistent and fairer outcomes.

The PAG has recently published a good practice guide which seeks to explain the most critical legal, actuarial and practical issues facing practitioners, the judiciary and couples who are divorcing in the area of pensions on divorce in England and Wales.

The guide aims to:

  • Help legal practitioners, financial experts, and judges dealing with pensions on divorce to understand issues relating to pensions in divorce cases that they may not have been aware of
  • Provide more detailed information to those who would like to dig deeper and signpost readers on to more detailed, authoritative sources elsewhere
  • Help parties, legal practitioners and judges to decide when ‘pensions on divorce expert’ (called a PODE in this report) input might be necessary to ensure that legal professionals and the clients involved are as well informed as they can be to make fair and appropriate decisions about the pension component of the overall financial settlement on divorce
  • Draw attention to potential pitfalls that may be encountered in these cases
  • Provide a good practice guide for legal practitioners and experts involved in these cases

An important early take-out from the report relates to those situations where parties may not need the assistance of a PODE. We look at these next.

When clients don’t need help from a pension expert

The overall aim in divorce financial remedy cases is to achieve fairness between the parties, and this applies to pensions as much as to other assets and income. Pensions are difficult to value and difficult to divide, and the assistance of a PODE may be needed whether the case is contested or not.

However, there are cases where it may be appropriate to share pensions according to their Cash Equivalent (CE) and without the assistance of a PODE.

Instances might include:

  • Where all pensions are Defined Contribution with no guarantees and the parties are of a similar age
  • Where both parties are under 40 and neither is in the uniformed services, nor has a significant Defined Benefit scheme
  • Where the governing principle is ‘sharing not needs’ and pensions are modest in the context of other assets
  • Where combined pension assets by Cash Equivalent are below £100,000
  • Where the only pension is a non-uniformed service public sector scheme offering internal transfer only and the remedy is pension sharing (rather than offsetting), there are no special complicating features, and there is no significant age difference between the parties.

In these instances, you may not need to seek the services of a PODE. This removes the need for a pension sharing report (saving the clients’ money) and it empowers your clients to agree a resolution, with your oversight.

However, even within these examples, there may be complicating features that may necessitate PODE input. These might include:

  • Where guidance is needed as to the level of income likely to be generated by a pension share
  • Where there is a uniformed-service public sector scheme
  • Where the pension assets are likely to exceed the Lifetime Allowance after, or as a consequence of, a Pension Sharing Order
  • Where there are implicit guarantees, for example, Retirement Annuity Contracts or Section 32 Buy Out policies
  • Where there are older occupational pension schemes with high tax-free cash allowances
  • Where there is a significant disparity in State Pension entitlement (e.g. £20+ a week)
  • Where there is a choice of schemes to be transferred
  • Where combined Defined Benefit pension Cash Equivalents exceed £100,000
  • Where there are public sector pensions and the parties are considering offsetting, there are complicating features, there is a significant age difference between the parties, or a uniformed service pension is involved
  • Where one of the parties has a serious medical condition.

As mentioned earlier, we will be highlighting further key issues raised by the report in the next few months, as well as hosting comprehensive CPD sessions where you will be able to find out more about the PAG’s comprehensive report.

In the meantime, if you would like more information on the PAG Report or to book a seminar in your offices to understand the latest guidance, please get in touch. Email info@blueskyifas.co.uk or call 01189 876655.