KISS – the phrase “Keep It Simple Stupid”, whilst rather forthright, can be a reminder not to overthink some things when getting divorced: for example, painstakingly trying to value all of your house contents is probably a waste of time.
But not so for pensions – because pensions are complex and can be a much more valuable asset than you may realise. Only married people and civil partners can share their pensions on dissolution of their relationship. The Court is tasked with considering whether the pension in those circumstances should be shared.
If you are divorcing or contemplating divorce then this is what you need to know:-
• Your spouse or civil partner’s pension is likely to be a matrimonial asset which can be shared. Clients will often say “He (or she) worked for it and earned it and I don’t want any of it”. The Court looks at contributions and, whilst your partner was earning their pension you were quite possibly bringing income into the relationship or staying at home keeping house and raising children: in other words your marriage was a joint effort.
• Before you make any decisions about whether you want to share or have a share of a pension it is important to get its “cash equivalent value”. This is easily obtained and you are entitled to a minimum of one a year at no cost to you (Providing the pension is not in payment; if it is in payment you may pay a fee for the CEV).
• The cash equivalent value of a pension is not a pound for pound accurate measure of the pension’s value – this is where things get complex and “apples and pears” becomes a good way of explaining why: a personal pension could be considered an “apple” whilst many occupational pensions (in particular public sector and “uniformed” pensions) are “pears”. This is because £10,000 of capital value of a police pension will buy you a whole lot more than £10,000 of a personal pension with, say, Scottish Widows or Standard Life. If there is a choice of pensions to share, and you share the wrong one, both parties may end up worse off than if the right pension were shared.
• If you and your partner want to come to an arrangement where one of you keeps their entire pension and the other one gets more of the savings or the house – a pound of pension cannot be treated like a pound of savings or a pound of equity in your home so understanding the “offset” value of your pension will be important.
• The particular rules of different schemes can inform how you should share pensions to both get maximum income from them.
So doing a quick calculation on the back of an envelope risks you losing out on income for the rest of your life at a time in your life when you could need it most – unless you can successfully sue your solicitor for negligence because they did the calculation on the back of the envelope.
Mary Shaw is a solicitor who advises on pensions as part of divorce and works with couples in mediation who are sharing their pensions. You can contact Mary for an appointment via the website or call 0191 243 8163.