This article looks at the second of the three systematic faults in the way the law settles pension issues causes the person with the smaller final salary pension, usually the wife, to lose out

My second fault is the common practice of discounting, or reducing, a pension value when offsetting. The argument goes that as pensions are not readily realisable for cash then they are less valuable than other assets. The argument is usually supported by quoting Manskell v Manskell [2001] 3 FCR 296, CA. I shall return to this case to support my contra argument later.

My view is that all assets should be valued on the same basis, which is their market value assuming an orderly sale. As already discussed in Part 1 this means an actuarial valuation for a final salary pension.

The market price is used as it is independent of the two parties involved and readily available to both parties and the courts. Therefore the court, as neutral arbitrator, can use it to divide up assets without bias to either side.

However we must allow that in most divorces cash is tight, and therefore both parties might be putting a higher value on cash than pensions, compared to the market view.

This is already normally taken into account by the simple procedure of the different parties "bidding" for the assets they consider most important first. "I want the house", "I want the cash in the bank", "I want the car", etc.

It’s a bit like children picking teams by selecting one p­layer­ each from the group available. You each get some of the p­layer­s you most want. However it’s also considered fair that you get half of the total number of p­layer­s.

In the same way I think when dividing asset up each party should both get some of what they consider the best assets, but I also think that each party should get half the total market value of assets. The only exception is of course unless children or other needs dictate a minimum for one of the parties, which takes precedence.

I contend that Manskell v Manskell supports my view. The original solution divided what little assets these parties had with the house and cash going one way, and the pension and some other unrealisable assets the other. It looks an obvious failure to apply the “bidding” process to ensure both parties get a fair division of the most desirable assets, not just the total assets.

In the circumstances the appeal judge, Thorpe LJ, corrected this error by the simple expediency of focusing on how much cash could be immediately or shortly generated from the assets. For pensions this meant the 25% that could be taken as a tax-free lump sum – hence the 25% discounting. The judgement did not say that pension values should always be discounted to 25% of their value, only that the differences in the types of the assets should be considered in the division of all the assets.

Support for this argument is that in a previous case where the parties were not on the breadline, Cowan v Cowan [2001] 2 FLR 192, CA, the same judge did not need to focus on cash and did not reduce the pension value. He then concentrated himself with noting the difference in the types of assets, and that the pension values were a guide based on assumptions which are not accurate to a pound. A view we support.

If pensions are bottom of the wish list for both parties then so be it, Pension Sharing or Attachment can be used to split them between the two parties as the final balancing up item.

So in summary my view is firstly that each party should get half the market value of assets, and that secondly each party should get a fair share of the assets they consider better for them now.

Nigel Bradshaw is Chairman and actuary at Bradshaw Dixon Moore.