Pension sharing orders have been in existence now for well nigh 20 years since their introduction in 2000. The aim was, as the name suggests, that pensions could be split or shared going forwards, to create fairness between spouses and civil partners on divorce or dissolution. This was done by allowing the family court to direct a transfer equal in value to a proportion of the member-spouse’s pension rights to be made to a pension arrangement which could then provide retirement benefits for the other spouse.
However, research highlights that pension inequality is rife, both in general terms and subsequent to divorce. Research by NOW: Pensions has shown that the median pension wealth of divorced husbands and wives by retirement is £103,500 and £26,100 respectively. The impact on women is worrying and it seems that many advisers and clients alike have overlooked what is often the second most valuable asset after the property. It is known by many that, in practice, women often prefer offsetting to pension splitting, which is when a trade–off is made to keep more of the home or capital in exchange for letting the husband keep more of the pension. However, this can sometimes be a mistake – especially if the lawyers do not properly investigate or evaluate the true value of the pension(s) involved. For example, where a client is older (say over 40) and has been in a long marriage, signposting the client as to the importance of securing pension income on retirement is part of the critical function of the family adviser, especially considering women live 3.7 more years than men, so their pension provision needs to last longer (and arguably needs to be larger in the first place just to break even with their spouse). The situation has led to unintended discrimination and women are disproportionately affected. In fact, the pension gulf at retirement is far wider than the approximate 17% gender pay gap.
To highlight and ameliorate the situation, The Pension Advisory Group published a guide last year, known as the PAG report which will help provide a more consistent and better informed approach to the treatment of pensions on divorce. The report is well worth a read and the hope is that practitioners will get a grip on this tricky area. Gathering the fullest information on all pensions held by divorcing spouses or civil partners – including state pensions and SERPS (which can be split unlike the state pension) – and how best to value them, including whether a “cash equivalent” measure is appropriate, is all part of the excavation work of a good family lawyer.
While it is often fair to provide similar incomes on retirement, equality is not always a fair result and each case turns on its own facts, such as the needs of the parties, contributions, health and the length of the marriage etc. The effort of investigating the situation thoroughly will at least put minds at rest and at best, could uncover thousands of pounds or an income stream on retirement that you did not know existed!