Show notes
This month we are joined by Hilary Woodward (Honorary Senior Research Fellow with Bristol School of Law), Paul Cobley (Oak Barn Financial Planning) and Rhys Taylor (36 Group) to discuss PAG2: https://www.nuffieldfoundation.org/wp-content/uploads/2023/A-guide-to-the-treatment-of-pensions-on-divorce-2nd-edition.pdf Hilary tells us about the changes in PAG2 and mentions the guide to the changes which is available on the webpage: https://www.nuffieldfoundation.org/wp-content/uploads/2019/11/The-PAG2-Guide-%E2%80%93-What-Has-Changed-1.pdfThe changes include the Divorce, Dissolution and Separation Act 2020, apportionment, short-marriages, lifetime allowance, Galbraith tables, and where there is an age-gap between the parties. Rhys explains the Galbraith tables – which is an attempt to provide the ‘true value’, or ‘market value’ of a defined benefit pension (not defined contribution schemes) for the purpose of divorce other than by use of the CE. They provide a multiplier according to the person’s age and benefit to use against the income stream for a pension. PAG2 says they are useful starting point, but remember they are a tool not a rule, which can be used when considering off-setting without the assistance of a PODE. They have not had high level judicial consideration but they do appear in At A Glance. Remember the current tables were drafted in early 2022 so just as the war in Ukraine started, and prior to Liz Truss’ terms as Prime Minister so there have been lots of changes in the bond markets since then. The tables will be updated in the next At A Glance. Paul reminds us that most of the time we are dealing with deferred pension scheme benefits i.e. where an employee has a pension scheme benefit from a previous employer. It is therefore really important that you obtain the re-valued income to today’s date and not what the income would have been on date the person left the company before applying the multiplier. We discuss off-setting, and that the key thing to ask yourself is do you have a broad handle on what the gross value of the pension is worth before you start trading it with other assets. Followed by apportionment - when is it appropriate, including in short marriage cases. Importantly PAG2 stresses that the relevant date, when apportionment is appropriate, is when seamless cohabitation prior to marriage commences – therefore we all should stop asking seeking the additional pension calculation from when the actual marriage starts. We discuss that the Lifetime Allowance is being abolished by the Finance Act (No. 2) 2023:https://www.gov.uk/government/publications/abolition-of-the-lifetime-allowance-from-6-april-2024/abolition-of-the-lifetime-allowance-lta#:~:text=At%20Spring%20Budget%202023%2C%20the,work%20to%20abolish%20the%20LTA%20. The lifetime allowance tax charge has in effect already been abolished, and from the 6th April 2024 the lifetime allowance will be abolished. However, it will be replaced by the lump sum allowance, and the lump sum and death benefit allowance in the future. The complexity comes that if a person had lifetime allowance protection before 6th April 2024 that allows a higher lump sum than is available on the standard lump sum allowance basisunder the new Act, they would still be able to benefit from the previous protections. Therefore, you must still find out whether the parties have a lifetime allowance protection. There are four new suggestions for dealing with when there is an age gap between the parties, and one party is receiving their pension, and the other person needs the pension to meet their needs but is too young to receive it currently. PAG2 now also suggests consideration of judicial separation (not divorce), spousal maintenance, an increased percentage PSO or consecutive orders (pension attachment to pension sharing orders). Also deferred pension sharing orders are technically possible but inherently risky. We discuss the problem with ‘moving target syndrome’ i.e. that the value of the pension at the time of the transfer is likely to be different to the value it was at the time of reports/ trial. This is particularly an issue with Defined Benefit Schemes, although it affects Defined Contribution schemes too. Unfortunately, in the last two years the values have often been a lot less at implementation (where in the past they have been a lot higher). It is important that we advise clients of these risks. Hilary, Paul and Rhys endorse the Survival Guide to Pensions on Divorce: - https://www.advicenow.org.uk/guides/survival-guide-pensions-divorceFor lay clients and litigants in person. It is too is being updated, and is due to be released in May 2024. Finally we say goodbye to Hilary. Do read Rhys’ article about Hilary in the financial remedy journal at: - https://financialremediesjournal.com/content/interview-with-hilary-woodward.871526729c204f91bd4346757b9895b2.htm