Pensions on divorce – Why use a pensions expert?
Pensions can be the largest assets in a divorce. They are often not fully understood or valued correctly. Understandably couples divorcing are more concerned with being able to afford a home and make ends meet now, rather than thinking about their income when they might retire many years in the future. Often divorcing couples ignore pensions all together.
On divorce pensions can be shared or subject to an attachment order. Frequently, couples “offset” the value of a pension against other assets, however, a pension is unlikely to have comparable value to a house, ISA or other capital asset.
The Court rules require parties to provide each other with a cash equivalent value (CE) of all their pensions, including the state pension. However, a CE may not reflect the true value of a pension. Just because each party has similar CE values for their pensions does not mean they are worth the same, for example, a police pension worth £100,000 CE will give a greater income than a private pension also worth £100,000 CE.
We recommend that serious consideration is given to the use of a pension expert (sometimes called a PODE – Pensions on Divorce Expert) in all but the simplest of cases. Pensions are incredibly complex, and their value is often not appreciated. Many parties are reluctant to spend money obtaining expert advice, yet the cost of such advice represents excellent value against the cost of getting it wrong.
An expert will help in getting the fair result for all parties.
What can a pensions on divorce expert do?
- An expert can look at the values of pension and assess whether the CE reflects the true worth of a pension and the cost of a similar private pension on the open market.
- An expert can consider incomparable types of pension and advise how they can be fairly compared.
- An expert can find out if a pension has a “hidden value” such as a guaranteed annuity rate or whether one pension might increase in line with inflation and another does not.
- An expert can warn of unforeseen consequences of complicated schemes such as the Armed Forces or other public sector pensions.
- An expert can advise on the most efficient way to choose which pensions should be shared in order to avoid a loss of value.
- An expert can calculate how equal income and equal tax-free lumps can achieved across a range of pension benefits.
- An expert can identify additional issues arising out of large age gaps between parties, planned retirement dates before state pension age and tax consequences.
- If parties wish to retain pensions but offset the value of pensions against other non-pension assets an expert can advise on the how the offset could be calculated fairly.
- If one party has a serious medical condition that might affect life expectancy, then an expert can the implications of that on future income
At Gordons Partnership we can advise that pensions can be more complicated than first thought and to spot the types of case where expert advice will be needed to achieve a fair, transparent outcome for all parties and help avoid nasty surprises when parties come to retire.
Family Law Associate