This blog is intended to encourage an exchange of ideas and promote debate about the financial issues that arise in a relationship breakdown. The concept is to create a platform for discussion that is not available elsewhere. Aimed mainly at professionals working in this area; lawyers, accountants, financial advisors and actuaries, it is also a potential source of information for the general public.
In our experience there is a significant variance in how professionals handle pension assets in divorce, with little consensus on which methods give the best outcome. We feel this is due in part to a lack of centralised knowledge and debate on what can be a complex issue. We intend to address this by posting our original articles on key subjects, as well as those contributed by others. Our intention is to post quality, discussion-worthy topics at least once a month, or more often if the need arises.
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HM Treasury has recently published guidance in respect of the discount rate for the purpose of calculating CETVs (Cash Equivalent Transfer Values). As a result, all unfunded public pension service pension providers suspended the provision of CETVs and embargoed implementation of pension sharing orders until new factors are published by the Government Actuarial Department (GAD). The guidance applies to unfunded Public service pension Schemes such as NHS, Fire, Armed Forces, Teachers, Police, Local Government Pension Scheme and the Parliamentary Contributory Pension Fund and until the new factors are known it is possible to reminisce that the last Government intervention saw delays in most instances of 2½ to 3 months.
In the majority of divorce cases pensions are often the most valuable asset and probably one of the more difficult assets to value; a CETV can take up to 12 weeks and adding further delay by suspension of the provision of CETVs will prevent thousands of divorcing public sector workers from finalising their divorce settlement regardless of whether parties are involved in mediation, collaborative law, solicitor led negotiation or court proceedings. Courts, lawyers and financial professionals will not be in a position to address, with any certainty or confidence, a suitable financial settlement. Legislation provides that pension sharing orders must use a current CETV calculation by the scheme when implementing the order, so without the ability to calculate the CETV or update a CETV calculated under the old guidance it has to be best practice advice to wait until new factors are known in order to negotiate from a level playing field.
Where schemes have provided a CETV on the basis of the old guidance but no final order has been made the scheme administrators are advised to inform the court if it is in a position to consider the revised calculations. If the courts hear cases before the new factors and a final order is made or parties reach agreement without knowing the true value, there may be challenges against legal advisors and potentially complaints to the pension ombudsman for maladministration by scheme administrators. In essence court hearings should adjourn, mediation and four way collaborative meetings cancelled. The delay will no doubt cause increased anxiety, stress and cost but there is little option to otherwise protect clients’ best interest in cases involving public sector pension schemes. Since industry observers cannot quantify the extent of the change; speculating that younger members may find their funds increase in value the reverse being mooted for older members and for those in middle age remain the same; surely consultation with an actuarial based professional should be the rule and not an exception.
This is the third time in three years that professionals have been given little or no warning of the proposed changes. How does this reflect upon our standing with our client? As professionals we are expected to be fully informed and up to date yet Government do not give notice of impending changes that have far reaching consequences. The budget in March 2011 and the Hutton report made mention of the proposals but nothing followed until October 2011! Is it likely that we will be faced with a similar situation in future? If so is it time to consider Judicial Review?
Julie-Ann Harris is Head of Family at Frettens LLP The Saxon Centre 11 Bargates Christchurch Dorset. She is recommended as a leader in her field of family law on the South Coast by Chambers 2012. www.frettens.co.uk
We are very grateful to Julie-Ann for submitting this article as a guest blogger