Both my wife and I are fifty this year. This has obvious downsides in that we are getting older but it does come with the benefit of a number of parties as our friends are also reaching this milestone this year.
Along with the discussions about children (who are now invariable at University or starting their own families) the topic of retirement is also frequently aired.
The questions of how to fund retirement, when everyone can (or would want to) retire and the long timescales before a state pension can be claimed are vexed and complex.
What is very clear, though, is that most couples have an imbalance of pension assets with one intending to rely on the other upon retirement.
This makes the division of pension assets in divorce an increasingly important issue where one partner has significantly less pension provision.
The courts have a number of options available to ensure a fair division and parity of pension benefits on divorce. The court can simply divide individual pension pots between the parties (“sharing”); make orders for income payments (“attachment”) or can divide the other assets (house and savings) unequally to compensate for the pension imbalance (“offsetting”).
An example might assist at this point: If the husband has £250,000 in his pension, the family house is worth £250,000 and the parties have no savings there is a matrimonial pot of £500,000 to divide.
The court could simply share – dividing each asset including the house equally between the couple.
However if the wife was looking to retain the house the court could look to “offset” with husband retaining the whole of his pension pot with the wife retaining the house.
However, is that fair? The wife has a house and the whole of the parties current capital and the husband has to wait until retirement for his share of the assets mainly as an income stream from his pension?
Should the capital value of the pension be reduced to take into account this delay in benefits being received? This question has been a difficult issue in divorce cases for some time.
Frequently a pension expert (known as an actuary) is instructed to assist the parties and the judge in arriving at the right figure to offset
In JS v RS  EWHC 2921 the court had had the benefit of an actuarial analysis when considering pension offsetting.
However the court was not persuaded that the actuary had been of assistance and the judge stated that he was aware from his “general reading” that there is a debate but as yet no conclusion on precisely arriving at an offsetting figure and referring to the calculation as ‘necessarily arbitrary’
This is dangerous territory for divorce lawyers and their clients alike – how can you negotiate a figure if it is arbitrary?
I don’t agree with the judge in the case and maintain that an experienced divorce lawyer assisted by an actuary is invaluable when pension sharing or offsetting is being considered.
This is particularly important when parties can draw tax-free lump sums from pensions under the Taxation of Pensions Act 2014) – changes the very character of what the pension benefit are as they are not just income, but also future capital.
Advice from an actuary armed with all relevant information (what assets exist with which to offset the pension benefits.; what rate of income tax the parties are paying and are likely to pay, and what assumptions is it reasonable to make about investment returns and risk) will enable the divorce lawyer to bring clarity to the situation – a much better word than arbitrary!
If you are considering going through a divorce and will need to divide assets, Farleys Solicitors can help. For advice from one of our experienced divorce lawyers please call 0845 287 0939 or submit your enquiry through our online form.