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Pension sharing update


The concept of "pension sharing" was introduced by the Welfare and Pension Reform Act 1999. The intention was that upon divorce a spouse's entitlement under a pension scheme could be split so that each of the parties has a separate pension fund. A classic problem that emerged almost immediately was that the parties might have different sorts of pension schemes or one of them might prefer to retain other sorts of assets rather than to receive a Pension entitlement. This makes it difficult to compare the different types of assets properly and therefore to calculate the value of the split.

 

Rather than a straightforward split of the pension assets, many divorcing couples prefer to "offset" one sort of asset e.g equity in the house or simple cash, and to forego a claim against a pension scheme. In many cases an actuary may be asked to produce a calculation of the relevant sum.  However, in the same way that a room full of lawyers will often manage to disagree about the meaning of a word, it seems that a roomful of actuaries will manage to disagree about the calculation of the appropriate sum to offset in any given case. There is plenty of science upon which they will agree but also a large dose of subjective opinion producing different results.

 

The picture has been complicated by the recent pension reforms which can have devastating unintended taxation consequences if amounts are incorrectly taken as lump sums from particular funds. Declining annuity rates have also caused major difficulties.

 

The courts have been grappling with how to balance the competing needs of individual parties with the constantly changing background of legislative change, tax rules and investment returns. A trend currently emerging for example, in the case of WS v WS 2015, is to calculate the income share required and then to use the well established "Duxbury" calculation to work out the capital sum required to generate that income over a period of time. The use of what is in effect a recognised formula may bring some consistency and predictability to cases. There is still of course plenty of scope to argue about the required income..............

 

For more information about this or any other aspect of Family and Divorce Law, please contact Ian Stirzaker on 01905 723561 or e-mail Ian.Stirzaker@smesolicitors.co.uk

 

Added: 09 May 2016 11:17


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