The first step is to decide whether the apportionment should be based on
The Income available or the Capital Value of the pensions
The Pension Advisory Group (PAG) Guidance is clearly supported by the Judge in the following case, who was the Co-Chair of PAG.
W v H (divorce financial remedies) [2020] EWFC B10
In this case, HHJ Hess concluded that:
- In a needs case, where the parties are ‘nearing retirement’ and defined benefit schemes are involved, equal sharing of pension income is more likely to be appropriate than sharing of capital.
- You should include all pensions accrued prior to the marriage. ‘It is difficult to see that excluding any portion of the pension has justification’.
- Offsetting should be avoided where possible.
The PAG Guidance does consider Equality of Capital Value may be more appropriate for younger divorcees and in other very specific circumstances.
Pension Sharing Order to achieve Parity of Income
It is generally accepted that the purpose of a pension is to provide income in retirement. To my mind Parity of Income is therefore the most appropriate way to assess and divide the benefits fairly and equitably. I expect this requirement to be included in all Letters of Instruction, but it is also necessary to consider the associated age to be used.
Pension Sharing Order to achieve Equality of Capital
Providing the same Capital Value to both parties, mirrors the starting point in relation to the other finances, but is not directly relevant for the pension as it will not give them an equal benefit.
The actual benefit each derives from the capital value varies. It can be impacted by their age, gender occupation and health. This will also be affected by which type of scheme provides the benefits. Additionally, it will depend on how the pension is eventually drawn and when.
My View
I would therefore recommend that Parity of Income is used as the basis for the Pension Sharing Order as against Equality of Capital Value in the majority of cases.
I concur Equality of Capital Value is more appropriate for younger (under 40) divorcees. This is based on the premise that the income figures are all estimates based on assumptions and as such less reliable over a longer term.
Equality of Capital Value will also be relevant in a case where all of the pensions are Defined Contribution and include no guarantees i.e. Guaranteed Annuity Rates (of any form) or With Profits (or other similar investments, with a fixed return). However, in those cases it is also unlikely a PODE Report will be required.