Pensions and divorce

The court has very recently looked again at how pensions should be divided on divorce (W v H (divorce financial remedies) [2020] EWFC B10. The case gives clear guidance on how to deal with pension sharing particularly in a needs case. 

The judge in this case was HHJ Hess, co chair of the Pension Advisory Group and the judgment gives specific consideration to the PAG report. 

The judgment looks in particular at three areas in relation to pensions:

1. Should the pension be divided by the capital or the income value? As ever in family matters, this depends on the facts of the particular case. Pensions are however generally intended to provide income during retirement, and so it is often fair to look at equality of income. This is particularly where parties are older and the pension is a defined benefit scheme, and where the income for each £ of cash equivalent value is likely to be higher within the retained scheme than outside it on an external transfer. 

2. Should a premarital portion of a pension be excluded from division? A contribution to a pension is unlikely to be "mingled" in the same way as say a contribution to the purchase of a joint property and so in that sense it can be kept distinct from a contribution made by the other party.  However, it is likely to be more difficult to differentiate between a premarital and a postmarital contribution within the pension itself. It is potentially unfair to exclude premarital contribution on a straightline basis for a defined benefit pension, which is likely to acquire more value towards the end of the contribution period. In any event, it will often be unfair to exclude a premarital pension contribution because the resultant division may not meet the recipient's needs. As pensions are limited normally by the Lifetime Allowance, a pension fund in itself is unlikely to take the case outside the category of needs. 

3. Should you offset a pension? This is risky, particularly without expert assistance as to how to make the calculation.  It may be unfair to offset, if it means that one party does not have sufficient capital to rehouse. In other cases, for instance where the pension is not a very significant portion of the assets and is a money purchase scheme or where the pensions cannot be shared (eg overseas schemes), parties may wish to do this but practitioners need to be careful.