When TP’s chair Lucy Reed forwarded me this article from the Telegraph (‘Divorcing women should be shown value of their husband’s pension, Age UK says’ – sorry paywall) my first response was AAAAAAAAAAAAGGGGGGGGGHHHHHHHHH, which is the sound of a legal academic in anguish. She asked if that was my blog post in its entirety. While it was certainly an accurate representation of my views, I thought I’d take the opportunity to clarify what the law actually says. In doing so, I am attempting to distinguish between the article’s valid and important points and the legal confusion in which those points are mired.
The article says: ‘Women going through a divorce should be given the right to see the size of their husband’s pension pot, Age UK has argued.’
This is already the law. Parties are under a legal requirement to provide full and frank information about their assets, including pensions. They can do this in a form E (if they are not agreeing who should have what assets) or a Statement of Information (where the parties are agreeing how to split the assets). More about those below. Where a party declines to provide the other with information, there are various ways for a court to compel them to do so, right up to sending them to prison for contempt of court.
On divorce, either spouse can claim against the other’s pension pot, as long as it is not their basic state pension. There are several ways in which this can be achieved:
1. By getting an order sharing the pension’s cash equivalent transfer value. The order tells the pension provider to transfer a portion (up to 100%) of the pension holder’s pension to the other party’s name. Depending on the rules of the pension scheme, the recipient spouse may take that money elsewhere (into another pension fund, not as cash) or have to keep it in a pension with the same provider. However, it operates completely separately to their ex’s remaining pension.
2. A pension attachment order, which is an order that when one spouse receives their pension a proportion of the payments are made to their ex. This is riskier because of the possibility that the first spouse might die, and the payments therefore stop.
3. By one party having extra capital or property instead of a share of the other’s pension. This is called offsetting.
The article says: “ At present for divorcing couples who settle their finances out of court there is no automatic right to know their spouse’s pension value or requirement that pensions must be split as part of the settlement.”
If you want a divorce settlement to be enforceable, you need a court order. That doesn’t require going to court, as if you agree the terms then a draft order can be posted to a judge. But whether you go to court or not, the court still has to be told what the value of any pensions are, and this information must be shared with the other party.
In contested financial proceedings (where the parties cannot agree) this information will be contained in a form E, which is a very long form setting out all of a person’s assets and liabilities, the truth of which is sworn. You can find this on the court formfinder website here.
Form E says:
“2.13 Give details of all your pension rights and all PPF compensation entitlements, including prospective entitlements.
Complete a separate page for each pension or PPF compensation entitlement.
EXCLUDE: • Basic State Pension
INCLUDE (complete a separate page for each one): • Additional State Pension (SERPS and State Second Pension (S2P)) • Free Standing Additional Voluntary Contribution Schemes (FSAVC) separate from the scheme of your employer • Membership of ALL pension plans or schemes • PPF compensation entitlement for each scheme you were a member of which has transferred to PPF
Documentation required for attachment to this section: a) A recent statement showing the cash equivalent (CE) provided by the trustees or managers of each pension arrangement; for the additional state pension, a valuation of these rights or for PPF a valuation of PPF compensation entitlement b) If any valuation is not available, give the estimated date when it will be available and attach a copy of your letter to the pension company, administrators, or PPF Board from whom the information was sought and/or state the date on which an application for a valuation of an Additional State Pension was submitted to the Department of Work and Pensions”
If you agree the terms of an order with your spouse, you send a crib sheet called a Statement of Information, and that also asks for pension information.
The risk here, which the article is not very clear about, is that people without legal representation are not getting court orders at all. That means that they are informally splitting their assets. A pension cannot be informally split because a pension company won’t share your pension just because you ask, and moreover, an informal split of the assets is not legally binding. A party can make a claim years later, even if the parties agreed who was to have what at the time. That is because only a court order can terminate the parties’ financial claims against one another. A divorce decree alone doesn’t do this.
There is no ‘requirement’ that the pension be split. Pension providers charge for pension sharing and some pensions are just too small to make that cost worthwhile. Moreover, one party may choose to have more capital (savings, house value) in preference for a share of the other’s pension.
The article says “According to research by Scottish Widows seven out of ten couples do not discuss their pensions at all prior to divorce, meaning many women may miss out on substantial sums without realising.”
Again, I think this is down to two things. First, people representing themselves might overlook pensions as an asset that can be shared. Second, even if they know about pensions, pension orders are still much less common than other types of order, such as an order to divide capital.
When I practised as a solicitor I always discussed pensions with my clients and emphasised that a pension share can be the only way some clients can build up a decent pension for retirement. Despite this, it was my experience that many women do prefer to offset the pension – allow the husband to keep his more valuable pension (because husbands do tend to have better pensions) in exchange for the wife keeping more of the capital, such as being able to retain the former matrimonial home and not being forced to sell it. While a pension share cannot be drawn until the recipient’s retirement, capital has the attraction of being available immediately. This is a viable alternative as long as you’ve done your sums right and as long as the wives understand that they will need to downsize later to free up capital to live on, in order to replace what a pension would have provided. But it is important that clients do make that decision in full knowledge of the value of the pension, the calculation of what they get instead, and the implications of that for later years.
The article says: “The Government must act quickly to make consideration of private pension wealth a proper part of the divorce process.”
When a judge considers the financial order suggested by the parties he or she will consider whether it is fair. Whether there should be a pension share is part of the overall consideration of fairness. To do this, the judge will consider the parties’ assets but is entirely reliant on what he or she has been told about the assets.
The article continues: “The report raised concerns about older women’s pension prospects. It pointed out that unlike in the past under the old state pension system, women retiring on the new state pension (from April 2016) do not have provisions to claim based on their spouse or civil partner’s contributions.”
This is an important change. In the past a divorced woman could send the decree absolute to HMRC and adopt their spouse’s national insurance contributions in order to boost their state pension entitlement. This is no longer the case. This change is particularly bad for women who have taken time out of their careers and thus do not have enough years of contribution to enable them to receive a full state pension. By bringing attention to pensions on divorce, the article has therefore done something important, even if it hasn’t done it very well.
Photo credit: Head in Hands by Alex E Proimos