With many couples separating after having married either later in life or for a second time, the issue of how pensions should be shared and whether pensions should be shared so as to exclude pension accrued prior to that marriage has become a major issue requiring advice from Family Lawyers.
Fortunately in the case of W v H (Divorce financial remedies) [2020] EWFC B10), the Courts have given very welcome guidance as to the approach that should be taken when sharing pensions.
In that particular case the wife was aged 50 and the husband 48. They had lived together since 1999, married in 2005 before then separating in 2016.
The main assets of the marriage were the pensions.
The husband had a large Defined Benefit scheme (schemes which pay out a secure income which increases each year, such as Final Salary or Government Pension Scheme) with a Cash Equivalent of over £2 million and a small Defined Contribution scheme ( a scheme in which the scheme member builds up a fund which can then be used to buy a retirement income) and the wife had a modest Defined Contribution and Defined Benefit scheme.
The main argument between the parties was
- Should the pensions be shared to achieve equality of capital value or equality of retirement income?
- Should the courts exclude that part of the pension that was earned by the husband prior to marriage/cohabitation?
In this case the Court decided to make a pension sharing order which would seek to equalise retirement income.
Furthermore the pension sharing applied to the entirety of the pension rights and did not exclude those accrued by the husband prior to the marriage.
The court stressed that although there is no “one size fits all” solution and that there are situations where equalising capital values may be appropriate for example where pension assets are relatively small, where parties are relatively young, or where pension assets are relatively straightforward, there will also be situations where pension sharing to equalise income would be considered appropriate. These would be cases where:
- The pensions are medium or large and the parties needs on retirement are required to be met.
- Where one or more of the pensions is a defined benefit scheme
- The parties are no longer young and retirement is on the horizon.
The Judge made particular reference to the Report of the Pension Advisory Group (PAG Report) and quoted from the report itself: ‘Given that the object of the pension fund is usually to provide income in retirement, it will often be fair … to implement a pension share that provides equal incomes from that pension asset … Equality of income will often be a fair result … A division that pays little or no attention to income-yield may have the effect of reducing the standard of living of the less well-off party significantly.’
The Judge also rejected the husband’s argument that pension accrued by the husband prior to the marriage should be excluded as this would have resulted in the wife being unable to meet her needs. The Judge again referred to the PAG report which reported that the vast majority of cases will be needs based and that in needs cases the Court can consider sharing any assets irrespective of when they were acquired in order to meet the parties’ respective needs.
Pensions are complex assets but The Black Country Collaborative Group are fortunate to have Specialist Family Lawyers and Independent Financial Advisers who will be able to guide separating couples every step of the way to help achieve a fair resolution through the Collaborative Process.