How to consider pensions in mediation
Pensions can be a valuable asset so that need careful consideration on divorce
Pensions can often be valuable assets and need to be considered when you divorce or dissolve your civil partnership.
There are several different types of pension scheme:
· State pensions
· Personal and private schemes
· Occupational pensions
· Stakeholder pensions
· Company and work schemes
· Final salary pensions
· Money purchase schemes
· Self–invested personal pensions (SIPPs)
Valuing pensions on divorce
First, the pension/s need to be valued. It is important to ask the pension provider for something we call a cash equivalent transfer value(CETV). Different types of pension schemes use different methods of producing the CETV. For example, the CETVs of some pensions are given at their transfer value, whilst others may represent the actual fund value. If the pension holder has a final salary pension, calculation of the CETV scheme can be very complex indeed as it will involve some projection of what the holder's future salary, and the pension fund, will be.
Second, a pension on divorce expert (PODE) may need to be involved to calculate the true value of the pensions involved. These are financial experts who specialise in divorce and can write a report setting out the pension values and the best way to deal with them on divorce. Pensions are so varied and complicated that sometimes it is important to engage the services of a PODE to provide information and advice that the mediator can’t input. Mediators aren’t regulated to give financial so in relevant cases it is important that a PODE is involved. Not getting financial advice on the pension is a bit like putting your house on the market and just guessing what it’s worth.
We have a list of pension experts that we can recommend if their advice is needed.
Sharing the pension pot
The pension pot is a term used to talk about the pensions of both people combined. There are three ways of dividing a pension pot. These are:
· Pension sharing
This is where a percentage of your pension is given to your ex-spouse or vice versa. The amount being transferred is put into a pension scheme of their own. The transfer is always dealt with as a percentage of the value of the fund it is being taken from, it can’t be referred to as a lump sum because of the pension rules that apply.
· Pension offsetting
This is where you keep your pension in return for your ex-spouse keeping a different asset, or assets, of the same, or similar, value. For example, once valued, you may keep your pension and your ex-spouse might keep the family home, if it is of a similar value.
This might not provide the best option where the pension pot is large and there are not enough assets of equivalent value. In these situations, it may be better to consider pension sharing or pension attachment orders/earmarking.
· Pension attachment orders
This was previously known in England and Wales as pension earmarking. This is where some, or all, of your pension is paid to your ex-spouse when you start to draw it (or vice versa).
This type of pension agreement does not provide a clean break and the order can be varied before the pension payments start. There are also problems if the pension owner dies before they retire, retires early, or stops making payments into the pension. These types of orders are rarely made now.
· Deferring pension sharing
You can arrange to defer pension sharing if one person has already retired and is already receiving a pension and the other one is not entitled to receive a pension for several years. You can also defer payment of your pension lump sum.
How can we help?
Our mediators are trained in all issues relating to pensions and can help you ensure that you understand the implications of sharing pensions.
We can give impartial information to both people so that you can agree away forward based upon informed choices.
We work with financial and pension advisers so that you can obtain advice from experts and make decisions not just for now, but also for the future.
When an agreement is reached the mediator will write up a document called a memorandum of understanding which explains the reasons for the decisions you have made. This document can then be taken to a solicitor to be made into a legally binding court order.
If we can help email us at email@example.com or call us on 0800 206 2258. You can also book a free 20 minute consultation on our website.