29th Apr 2020

Divorce and Pension Sharing in Uncertain Times

By Mariko Wilson

Divorce and Pension Share Orders in Uncertain Times. In this blog Family Law in Partnership senior associate, Mariko Wilson examines how pension share orders agreed on divorce have been impacted by the COVID-19 Pandemic. 

So much has changed in recent weeks that it probably feels difficult to think about how your income in retirement might have been impacted by the COVID-19 pandemic. Many of us are simply wondering how the next few weeks and months will pan out, and struggling to think beyond that. But in reality, now is not the time to become complacent about your income in retirement, particularly if you are in the process of getting divorced or are recently divorced.

In this blog, I’ve covered some of the questions that our clients and former clients are raising with us now on pension share orders and divorce.

What if a pension report has already been commissioned about the sharing of pensions on divorce? Are you safe to assume that 50% is still 50%, (or whatever percentage share the report recommends) albeit of a potentially reduced pension pot?

In short, no, because not all pensions were created equal.

Traditionally pension reports have often sought to avoid the destruction of inherent value in certain pension assets by preserving certain funds intact (such as defined benefit schemes), whilst where possible, invading only those schemes whose intrinsic value is not impacted by being shared. The result might therefore be that whilst the division recommended by the pension report created broadly equal incomes in retirement, that income is in fact generated/supported by very different underlying assets/ assurances, which may have been impacted very differently by the COVID-19 Pandemic.

The long and short, therefore, is that pension reports commissioned and written before the pandemic should be revisited to make sure that the recommended division of pension assets still achieves the desired outcome (such as equality of income in retirement, for example). In short, the advice from pension experts is not to settle your case without checking with the author of your pension report as to whether there is anything specific in your case that needs revisiting.

What if you have already settled your divorce case and have an effective pension sharing order?

The next step is to ask the pension administrators to effect the transfer, i.e. to carve out your “portion” of the scheme and to transfer it to you.

The pension provider must implement the pension sharing order within four months of the date that the order takes effect or, if later, four months from the date that the pension provider receives the relevant paperwork (decree absolute on a divorce, the pension sharing order and annex). But in an uncertain world, there may be the temptation to bury your head in the sand at this stage and defer decisions about what to do with your pension credit until the world is a more certain place.

However, burying your head in the sand rarely yields the best results in life! Now more than ever, it is vital to take expert investment advice as to what to do with your pension credit and how best to manage it. With investments under pressure, it is more important than ever that they are managed carefully to ensure that they serve the function they were designed for.

Furthermore, with the slowdown in production of pension information by pension administrators that many divorce lawyers are seeing, you may also find the services of your pension advisor invaluable to guide you through the implementation process (and to oversee that it is done correctly).

The bottom line?

Take advice quickly so that you are able to make informed decisions to reduce uncertainties during uncertain times!

Mariko Wilson is a senior associate at Family Law in Partnership. She handles all aspects of private family law and has a broad range of experience, frequently acting for high net worth individuals in financial relief and divorce proceedings as well as acting in children matters. You might find Mariko’s blog “Can I have a share of my spouse’s pension on divorce?” of interest – read it here.

For more information or advice regarding financial settlements on divorce and separation including the treatment of pensions, please contact Mariko or any of our top London divorce lawyers at Family Law in Partnership on 020 7420 5000 or contact us at: hello@flip.co.uk