Pensions on divorce: a clearer way to explore your options

Pensions can be one of the most valuable assets in a divorce, but they are also among the hardest to compare.

A pension worth £300,000 is not necessarily twice as valuable in retirement as one worth £150,000. Different pension types can provide very different incomes, become payable at different ages and respond differently to pension sharing.

That can make pensions particularly difficult to deal with during mediation, solicitor negotiations and other forms of Non-Court Dispute Resolution (NCDR).

Looking beyond the pension values

A common starting point is to compare the Cash Equivalent Values (CEVs) of each person’s pensions.

Sometimes that may be sufficient. In other cases, however, the headline values do not tell the full story.

For example, a defined benefit pension providing a guaranteed income can have very different characteristics from an invested personal pension, even where the stated values are similar.

This is where FairSplit can help.

FairSplit has been developed to help family law professionals explore pension sharing and offsetting options at an early stage, before deciding whether more detailed expert analysis is required.

It is often most useful when the analysis is undertaken by, or alongside, a professional who already understands the wider circumstances of the case e.g. a mediator, family solicitor or financial planner.

Using the available pension information, FairSplit can help explore:

• what each person’s retirement income might look like if nothing changes;

• what level of Pension Sharing Order might broadly equalise retirement incomes at an agreed age;

• what those incomes could look like following a pension share; and

• what an indicative pension offset might look like where one person retains more pension and the other receives more non-pension assets.

  
  

The purpose is not to decide what the settlement should be. It is to make the pension consequences of different options clearer.

Useful in mediation and other NCDR

This can be particularly helpful where the parties are considering proposals such as:

“You keep more of the house and I keep more of my pension.”

Before agreeing to that type of arrangement, it is important to understand what pension income may actually be retained or given up.

Likewise, simply knowing that one person has the larger pension does not necessarily tell you what level of pension share might produce a more balanced retirement position.

FairSplit helps turn those discussions from a comparison of numbers on a balance sheet into a clearer view of what those pensions may actually mean in retirement.

Knowing when expert input is needed

FairSplit is not a replacement for a Pension on Divorce Expert (PODE) report.

It also highlights circumstances where more specialist analysis may be appropriate, such as certain public-sector pensions, significant age differences, and pensions already in payment.

Sometimes the most useful outcome is therefore not a calculation, but recognising that the case needs to be escalated for expert evidence.

If you are already working with a mediator, family solicitor or financial planner, you can ask them whether FairSplit may be appropriate for your case.

You can find out more at https://www.fair-split.co.uk.