The PAG highlights concern in the industry that offsetting is often considered the default position, perhaps because parties, their lawyers or even judges are reluctant to grapple with issues of pension valuation.
They point out that a failure properly to understand pension assets is the largest source of negligence claims against family lawyers.
Pension freedoms and the lifetime allowance
In some cases, pension sharing can be a helpful, and tax-efficient aid to settlement.
A party who is likely to reach their lifetime allowance (£1,055,000 in 2019/20) before retirement, can transfer all or part of their pension pot to a spouse as part of their divorce settlement, up to the spouse's lifetime allowance. The transferor then has the opportunity to re-build their pension pot, taking advantage of tax relief.
However, the recent reduction in the annual allowance will reduce the number of individuals for whom this is a viable option. Those considering this option need to be aware that the valuation used for calculating the Lifetime Allowance is not necessarily the same as the CE, particularly in the case of Defined Benefit schemes.
The so-called "pension freedoms" have introduced an element of flexibility into the treatment of pensions on divorce.
In certain situations, it can be helpful for one party to be able to release capital (perhaps to help fund a property purchase), or to draw down funds from a pension to supplement income from employment of maintenance. However, there are potentially serious pitfalls for the unwary.
For instance, it is all-too easy inadvertently to trigger the Money Purchase Annual Allowance (MPAA), thus reducing the amount that can be reinvested into a pension to a maximum of £4,000 per year.
The PAG once again emphasises the need for parties to seek professional advice before seeking to use pension sharing as part of an overall financial settlement.
Advice
The PAG repeatedly urges that parties seek specialist advice in relation to this complex area. Failure to do so can have very serious consequences.
However, the PAG notes that there is no clear means of identifying who is qualified to give such advice.
There are acknowledged experts in pensions on divorce, among them some actuaries, financial planners and independent financial advisers.
In the absence of a specific accreditation, the PAG suggests that a proposed expert should be asked to sign a statement of truth, in effect self-certifying that they have the requisite expertise, that they have systems in place for peer-review and handling complaints, and suitable insurance.
