The purpose of this article is to provide a brief update to my previous article dealing with pensions and pension offsetting. It will be recalled that my previous article dealt in particular with the case of WS v WS [2015] EWHC 3941 (Fam) and the fact that the Duxbury calculations were used to ascertain future capitalized lump sum provisions.
Since then, the case of J v J [2017] 1 FLR 729 was determined on the 30th of June 2016. This case did not deal specifically with pensions at all, but interestingly, the Duxbury calculations were used to determine the future capitalized needs of the Applicant Wife (“W”) [76]. Aside from the fact that the W had to apply under Part 111 (and in particular, sections 16 to 18) of the Matrimonial and Family Proceedings Act 1984 (“the 1984 Act”) for the financial proceedings to be heard and determined by English courts, the resources available were considerable and the parties’ lifestyle described as “stratospheric”. The W sought a global provision of £196.5M.
The Court having granted the W’s 1984 Act application, turned its attention to the section 25 criteria set out in the Matrimonial Causes Act 1973 (“the Act”) and awarded the W a housing fund of £18M and a Duxbury fund of £44.3M.
In considering the section 25 criteria in J v J, Roberts J indicated as set out in the Act, that the Court was required to consider all the circumstances of the case.
What is also interesting about J v J is that, despite the extensive resources available, it was conceded that the W’s financial provision related in general terms to her reasonable needs. Roberts J also provided a useful summary, after considering the various authorities on the main principles to be applied to the issue of need (as set out in section 25(2)(b) of the Act). In general terms at [79] Roberts J held as follows:
“(i) The first consideration in any assessment of needs must be the welfare of any minor child or children of the family.
(ii) After that, the principal factors which are likely to impact on the court’s assessment of needs are: (i) the length of the marriage; (ii) the length of the period, following the end of the marriage, during which the applicant spouse will be making contributions to the welfare of the family; (iii) the standard of living during the marriage; (iv) the age of the applicant; and (v) the available resources as defined by s25(2)(a).
(iii) There is an inter-relationship between the level at which future needs will be assessed and the period during which a court finds those needs should be met by the paying former spouse. The longer that period, the more likely it is that a court will not assess those needs on the basis throughout of a standard of living which replicates that enjoyed during the currency of the marriage.
(iv) In this context, it is entirely principled in terms of approach for the court to assess its award on the basis that needs, both in relation to housing and income, will reduce in future in an appropriate case.”
Having viewed the authorities, Roberts J also held that fairness to both parties remains the overarching objective even in a case based on future needs [70]. Furthermore, that although needs have to be assessed by reference, amongst other things, to the marital standard of living prior to the breakdown of the marriage, section 25(2)(a) of the Act makes it clear that any assessment of “financial needs” will in particular be formed by the extent of the available resources [72].
In addition, Roberts J sounded a note of caution in respect of using the standard of living as a bench mark and commented obiter that a needs generated award calculated on the basis a Duxbury multiple and which reflects the former marital standard of living is not necessarily a complete answer in every case where the extent of the available resources make such an award feasible [76] and that the marital standard of living cannot be assumed to be a “lodestar” [77].
By way of further update, in a recent article in Family Law Week of the 19th of August 2019, entitled Pension Cap exception may benefit divorcing pension holders by Steve Webb, Director of Policy at Royal London, the issue of the Money Purchase Annual Allowance (“MPAA”) Rules in relation to pensions and divorce was discussed. As Steve Webb pointed out, the background to this is that since the introduction of ‘pension freedoms’ in April 2015, it has been possible, for people aged 55 years and above to take money out of their pensions in ‘chunks’ rather than turn the whole pension pot into an income for life or annuity. But as pointed out by Steve Webb, in order to prevent people repeatedly taking money out, benefitting from tax free cash and then putting the money back in again with the benefit of tax relief, the HMRC have introduced a limit, known as the Money Purchase Annual Allowance or “MPAA”, on the amount that could be put back into pensions once people have started drawing taxable cash. It is understood that the MPAA limit is currently £4,000.00 per year.
As Steve Webb points out however, the rules permit the withdrawal of the entire fund of a ‘trivially’ small pension pot under £10,000.00 without triggering the MPAA. Steve Webb further advises that if an individual has two pensions and wants to withdraw less than £10,000.00 they should consider cashing in a small pot in full rather than taking a partial withdrawal from a larger pot as this avoids triggering the MPAA. As a result of this, it will be possible for people in accordance with future pension planning, to retain the ability of putting up to £40,000.00 (the current total tax allowance) in a pension each year rather than having this amount slashed by £4,000.00, ie the current MPAA limit.
The implications for financial remedy proceedings is clear in that it is important for the Courts and practitioners to be aware of how the MPAA rules work in order to assess the amount of any future pension provision.
In summary, as indicated above, the Duxbury calculations certainly assist in determining future capitalised lump sums. This is important in the context of pensions, pension off-setting and financial remedy proceedings in order to ensure an equitable division of the matrimonial assets. The amount of pension provision available may be affected by the MPAA, especially if the parties are 55 years and over and have started drawing down/cashing in their pensions. Even if the parties have not started drawing down their pensions, it is important when assessing the value of any pension pot to be aware of the MPAA and the tax implications.
