Pensions are often a great worry for a client when they separate. Designed to provide some security for their future, pensions generate a great deal of concern for clients at the very point that a client’s future security can appear to be uncertain. In many cases, a client’s pension will be one of their most valuable assets and something they are very keen to protect.
There are three ways that pensions are generally divided at the time of separation: pensions sharing, pension attachments and pension off-setting. However, a critical hurdle to overcome is how to value the pension, particularly if the pension is not yet in payment, which it may not be for many years yet.
This issue is ever more so acute when the idea of pension off-setting is considered by the court. In such circumstances, the court faces an almost impossible task of trying to calculate the value of non-pension assets that represent an equivalent sum to the pension value. For this reason, the courts frequently prefer to utilise their powers for pension sharing and attachment orders. It might only be appropriate to consider this off-setting approach if the pension values are comparable or if the pensions form a small proportion of the overall asset total.
In order to value a pension, the starting point is the Cash Equivalent (Transfer) Value, or CEV/CETV. This provides a capital figure that the courts widely accept is not akin to a similar capital sum of money held in a bank account. At the turn of the century, two leading cases looked at the approach the courts might take when attempting to value the pension and its place in the asset pot of the matrimonial finances – Maskell and Norris.
In Maskell, the Court of Appeal felt the pension should be valued at a sum equivalent to the total that could be taken at the point of retirement. This equated to 25% of the CEV. The remaining 75% balance was considered as a form of income. In Norris, the court held that it would be unfair and unreasonable to include the full CEV as part of the asset total. This case involved a wide aray of assets, including a pension with CEV in the region of £750,000. The court adopted a holistic view to the settlement, but allowed for some deduction from the CEV quoted.
Subsequent cases have adopted a more pragmatic approach, by removing pensions from the asset total and dividing all capital assets as appropriate under the “yardstick of equality”, before then applying the same ratio split to the pension CEV.
It remains clear that pensions still present a challenge to the courts, when considering a division of matrimonial assets. This complexity often the manifests as uncertainty in the client’s eyes. Inevitably, all cases will turn on their own, unique facts. It is vital that parties obtain specialist advice to protect their assets, which may include an actuary’s report on the income and capital values that are generated from a pension.
Serving London and Bedford, our lawyers can help you with your family law and divorce matters. If you would like to discuss your pension or protecting other financial assets with one of our specialist solicitors, contact us on 01234 889777 or 0207 177 9777 for a free consultation.