When trying to assist clients to reach an agreement about how best to divide their matrimonial assets there is no doubt that issues relating to pensions and their value form a very important part of the landscape. For many people, apart from the value in the family home, the pensions are the biggest assets and there are some cases where the value of the pensions dwarf the value of everything else. It is therefore of vital importance that accurate valuations of pensions are obtained and that these valuations are apportioned properly for the period of the marriage in order that financial settlements can be seen to be fair.
The method of obtaining the value of the pension at the date of separation (the CETV – Capital Equivalent Transfer Value) is regulated by statutory instrument and so is the methodology by which a pension can be apportioned for the period of the marriage.
It is this latter situation that can cause problems.
In a situation where the husband and wife are still in pensionable employment the formula for apportionment is relatively straightforward. The problems I am referring to here arise where a party’s pension is in payment by which I mean that they have retired and are receiving their monthly sums. There is no doubt that care must be taken in this situation otherwise an outcome, not anticipated by the legislation, could come about and one or other party is going to feel aggrieved.
The problem relates to the definition of “membership” of the pension scheme. The regulations seem to state that even when a party retires the periods of retirement should still be taken into consideration when the apportionment is carried out. Most lawyers who specialise in family law agree with this view. Actuaries, on the other hand, point out that this interpretation can bring about anomalies and suggest that a fairer way of carrying out the apportionment would be to consider the retired person’s “active” membership and not take into consideration the period after they retire. So far there have not been any cases that can be looked at for an interpretation of the legislation and therefore it falls to solicitors to try and negotiate a fair settlement for their clients.
One thing is certain and that is that if this area is not properly looked at imbalances can occur. I think anyone who has a pension in payment should obtain legal advice but also advice from an IFA or actuary. It is important that the various values are clear to the client and that in a situation where both parties have a pension in payment the same criteria is used.
As I mentioned above, for more mature people (I mean this as a polite way of saying older people) the value of their pensions in matrimonial cases becomes more significant. Sometimes pensions can be worth many hundreds of thousands of pounds or more. If parties marry later on in life and one or other of them continues their employment for a few years and then retires and they then continue to cohabit for many years before separating then the differences in apportionment and the significance of the definition of membership can become acute.
Until there is a case to interpret the legislation will continue to be a grey area and, as a result, expert advice is necessary.