Pensions in Financial Remedy Cases – A Short Review

Having recently had several cases with pension complexities, reread the PAG report and authorities and attended two remote seminars on the same, it seemed sensible to write a short review of what seem to me to be the key issues on a subject that probably causes more trouble than any other in financial remedy proceedings.

In fact that last statement may be something of an under-statement as, according to the PAG report, the issue of off-setting pensions against other matrimonial assets is the cause of more negligence claims against solicitors than any other in financial remedy cases by far.

What is more, to continue the alarmist theme, as an earlier article by Holly Coates on this website pointed out, it is a little appreciated fact that simply ticking the box in the Pension Sharing Annexe to elect for either an internal or external transfer amounts to be giving regulated financial advice – which as mere lawyers we must obviously not do and which will play havoc at least for Barristers with their declarations made to Bar Mutual.

I am not going to attempt to cover all possible issues and complexities in this short article but, even from just the two points made above, what comes out of almost everything on this topic currently is, if in doubt ask a Pensions On Divorce Expert (PODE), whether as a shadow expert at least initially or as a Single Joint Expert and, do not go it alone. In fact, I will say here and not just to illustrate the point, that anything said in this article must not be taken as financial advice which I am not qualified to give but as illustrations of what I understand the PODEs to be saying.


Cash equivalent values, whilst supposedly the measure that we should use and that which providers are required to give, are in many cases next to useless if not totally misleading: In short: The CEV of a Defined Benefit scheme (teachers, NHS etc) will typically grossly underestimate the pension’s true value compared to a Defined Contributions scheme (most ordinary private pensions). Even within different Defined Benefit schemes the method of calculation of CEVs is not the same. And even private pension CEVs rarely reflect the true value, i.e. what it would cost to purchase the same benefit and not all such pensions are the same anyway.

Other Variables

There are also other variables that can greatly alter the true value of a pension that are easily missed such as, guarantees or enhanced protections, whether there can be an internal transfer and whether a transfer out will in fact cause what remains to be diminished in value far more than it appears. Perhaps rather more obvious examples are, different ‘normal retirement ages’, disparity in the ages of the parties and life expectancy.

State Pensions

In one of my most recent cases, which partly revolved around two medium sized pensions and a highly detailed PODE report, neither party had asked the SJE to look at state pensions and only one party had obtained a calculation. That is far from unusual. State pensions tend to be ignored. That is a serious mistake in small to medium money cases: The cost of purchasing a scheme that will provide the current maximum state pension of about £9,000 p.a. is about £300,000. Further, one party may have a larger state pension entitlement than the other. In particular, if the case is a needs case, all of this is vital.

Tax Complications

There are a number of ways in which tax consequences can greatly affect the real outcome but two examples given by PODEs serve to illustrate: The Lifetime Allowance of just over £1m means that anything over that held by one party will result in tax on both income and lump sums but, dividing it between the two parties so that neither is over the lifetime allowance can remove that liability. Further, a pension with enhanced protection may provide the pension holder with tax benefits that cannot be transferred so that, rather than a pension sharing order, the holder taking the benefit first and then paying a lump sum to the other party may well avoid what otherwise would attract a tax liability.

Balancing or Equalising “Pension Benefits”

Overlapping with the issues relating to CEVs generally is the question of what exactly is to be balanced. Usually it is said that the goal is to equalise the “pension benefits” but very often it is left unspoken or unclear as to what is meant by that i.e. whether it is equalisation of capital value or of income provision. Of course, if it is to be capital value then it must be the true capital value taking into account all of the above factors. But also the PAG report comes down fairly heavily in favour of a division based on income because firstly, that is what a pension is for, to provide retirement income and secondly, because in a needs-based case it is essential to establish what the income will be. Further, W v H [2020] EWFC B10 (available on Bailii through: deals with this issue in some detail at para 60 and adopts the same approach. There may still be cases where equalisation of value, true value, is the right approach but either way the PODE needs to be carefully instructed as to what is being asked for capital value, income or both and it is difficult to see how the best decision can be made without seeing both.

Accrual Period

For some time now it has been common practice to simply disregard that part of the pension that was accrued outside the period of the marriage (or cohabitation) in equalising pension benefits. The decision of Thorpe J in H v H [1993] 2 FLR 335 has usually been relied upon to support that approach, even though it is not clear that that is what Thorpe J was actually saying and despite His Lordship appearing to say the opposite in Harris v Harris [2001] 1 FCR 68. In any event, both the PAG Report and W v H [2020] (above) pour some cold water on this practise. The PAG report says that the practise is “rarely appropriate” in needs cases. W v H disproves of the practise in needs-based cases on pretty much the same basis as the principle that labelling an asset non-matrimonial will not prevent its utilisation to satisfy needs (and come to that nor will a pre-nuptial agreement) – in short the needs trumps all approach: please see my earlier articles on this website on non-matrimonial assets and prenuptial agreements and Nicole Jennings’ article giving a more detailed examination of W v H on this point. Of course that leaves open an argument for non-matrimonial accrual periods in cases that are not needs-based or are partially needs-based or where fairness requires it for some other reason and in those circumstances careful instruction of the PODE as to exactly what is sought will be required.


As said at the beginning of this article, this area is a particular danger zone. Not only do all of the above factors apply so as to make true valuation of the pension asset far from straight forward but also the other assets in the case may well have tax and other complications to them that make the overall exercise of trying to balance the two an extremely complicated process. And of course, there is the fact that the other assets may well be liquid in an instantly obtainable form whereas the pension is probably or at least partly not. The PAG Report comes close to advising against off-setting altogether.

Instructing the PODE

Everyone says that there are still cases where a PODE is not needed but it is perhaps surprising how few examples are given and how low the thresholds: Obviously the lower the values and the younger the parties the less necessary a report may be but for instance the PAG report talks of still being cautious in cases with combined values of around £100,000 and of usually requiring a report at around £200,000. Of course, the type of pension will also make a difference as above and each case will depend on its facts but simplifying factors include: the younger the parties are, the closer they are in age, the more modest the value (particularly around £100,000 or less), same type defined contribution schemes and same type defined benefit schemes with a purely internal transfer. However, if a PODE is to be instructed then there needs to be a close eye on the type of equalisation, accrual periods and retirement age(s) to be used in the calculations but also, where the particular pensions seem as if they may need it, then the PODE should be asked to at least consider the relevance of all or any of the above factors. Finally, helpfully the PAG Report provides a specimen letter of instruction which is attached here for ease of reference.

Specimen letter of instruction to Joint Single Expert – PAG Report Specimen LOI