Pensions and Divorce - And Why You Might Need a Pension On Divorce Expert

Pensions may not be the most glamorous topic, but they are often one of the most valuable assets in a marriage, acting as a crucial facilitator for a comfortable retirement. In this episode of Headnotes by Whitehead Monckton, family lawyer Emma Palmer sits down with Simon O'Connell, a Chartered Financial Planner from Evening Partners, to demystify the complex world of pensions on divorce. From breaking down the differences between Defined Benefit and Defined Contribution schemes to explaining the critical guidelines set by the Pension Advisory Group (PAG), this episode provides clear, jargon-free insights into securing your financial future. Whether you are navigating a divorce yourself or simply want to understand how pension sharing orders actually work, Emma and Simon guide you through the process, the hidden pitfalls of offsetting, and why instructing a Pension on Divorce Expert (PODE) might be the smartest move you can make. 

In this episode, we are covering:

• The key differences between Defined Benefit (public sector) and Defined Contribution pensions. 
• A breakdown of the court orders available, including pension sharing orders and the rare attachment orders. 
• Why trading your pension for a capital asset like a house (offsetting) can lead to a poorer retirement. 
• The major impact of the Pension Advisory Group (PAG) and their push for equality of income in retirement. 
• What a Pension on Divorce Expert (PODE) is, and when your combined pension values mean you need one. 
• Navigating the McCloud judgment and its effect on age discrimination within public sector pensions. 
• The reality of implementation timeframes: why getting your court order is only the beginning of a months-long process. 
• How a financial planner can help you manage your settlement, mitigate risk, and avoid running out of money through income drawdown. 

Speak to one of our friendly lawyers at Whitehead Monckton

> Visit Website  > Contact Us

Find us on Social Media

> LinkedIn  > Facebook
> Instagram  > YouTube

Disclaimer: This podcast provides general information and does not constitute legal advice. Timelines and regulations are subject to change.

Transcript

SPEAKER_02 0:01

This is Head Notes, a podcast from Whitehead Moncton. Coming up on this episode.

SPEAKER_05 0:08

Technically, pensions are not necessarily the sexiest of subjects, but ironically, they're often one of the most valuable assets in a marriage, particularly for those couples later on in life.

SPEAKER_01 0:18

A pension and divorce expert is trying to understand what the pensions are, looking under the bonnet as to is it a defined benefit, is it a defined contribution? So what a pension on divorce expert does is writes to the schemes, they get the inform the correct information. How much should you share? So what is the combined value and then how do you share that equally between both parties? And then the other thing is, then where do you take that money from?

SPEAKER_05 0:38

And actually that's a really interesting point because I've had clients come in before that have said, well, I should have half of each of those pensions, and then getting them to understand actually that's not necessarily the most cost-effective way of doing it.

SPEAKER_02 0:49

This is Head Notes, a podcast from Whitehead Moncton.

SPEAKER_03 0:55

Law doesn't have to be complicated, it just needs to be clear. We're here to help you see law and lawyers differently. This podcast brings you the latest developments in law. From business challenges to family matters. Made easy to understand without the jargon. We are changing the way you see lawyers. This is HeadNotes by Whitehead Moncton.

SPEAKER_00 1:18

Legal Excellence, tailored to you. A very warm welcome to another episode of the HeadNotes Podcast. And this week, Emma and Simon will tackle one of the most valuable, yet often misunderstood, assets in any marriage: pensions. And what happens to pensions if you are going through divorce proceedings? It's a very specific subject in family law that can often be quite overwhelming to any couple going through divorce and dealing with pensions. Emma and Simon are here to break down the complexities of achieving a fair split, explaining why trading a pension for the house can be like comparing apples and pears. They also demystify the role of a pension on divorce expert, or pod for short, and warn against the magic pension fairy trap, ensuring you don't get caught out after the court order is signed. Just a quick reminder that while we hope you find this discussion helpful, it is intended as general information and does not constitute formal legal or financial advice. Let's get started.

SPEAKER_02 2:28

Hi everyone, so my name's Emma Palmer.

SPEAKER_05 2:30

I'm a family lawyer here at Whitehead Moncton, and I have a practice in um collaborative law and in the very new concept one lawyer, one client, and uh sorry, two clients, and I'm here today with um Simon O'Connell, who's from Evening Partners and who is a financial planner. Simon, do you want to tell um uh everyone a little bit more about yourself?

SPEAKER_01 2:50

Yeah, hi Emma. So I'm Simon O'Connell, I'm a chartered financial planner at Evelyn Partners. Um I give advice to clients um mainly on divorce. Uh I head up the family and divorce team um across the south, um sort of from Kent across to um sort of Bristol Cardiff area. Um yeah, and so most of my work is on sort of dealing with family um uh clients.

SPEAKER_05 3:12

Fantastic. So, Simon, technically pensions are not necessarily the sexiest of subjects, um, but as you know, I'm hugely passionate about pensions. I see them as being a real facilitator uh for clients, and um ironically, they're often one of the most valuable assets in a marriage, particularly for those couples later on in life. Um we thought we'd try and give a bit of a whistletop store uh tour through pensions. So um, can I ask you to try and explain in uh in easy terms for the audience to understand uh the different types of pensions that we have?

SPEAKER_01 3:44

Yeah, so I suppose really there's two main types. So the first thing um one is called a defined benefit, and that is mainly the public sector, so things like NHS, teachers, armed forces, police, that type of thing, where you um you get your service and your salary. So it's a guaranteed benefit, you know what you're gonna get, you know, based on your salary and how long you work there, um, you can work out what your final pension would be in retirement. The other one is a defined contribution where you put your money in, and it's normally through an insurance company or an investment company. So you pay your contributions, you you invest in something, but there's no certainty, you don't know what you're gonna get out at retirement. So that's really the two main types.

SPEAKER_05 4:28

And then in terms of the orders the court can make, then obviously that's something that I see all the time, and you're obviously helping uh in a way to advise on. Um we we've broadly speaking got pension sharing orders, um, we've got pension attachment orders and we've got offsetting. Um and um I think the easiest way to explain a pension sharing order is to say that effectively a uh one person's pension, a percentage of that is taken out and transferred by a court order to another person's pension. Um, earmarking, we don't really see many of them anything to do with not really. I mean, that used to be um pre-the kind of pension sharing order coming in, um, that that was the only way to make an order against someone's pension. But I remember back in the day when I started out before we had pension sharing orders, uh, it was quite unreliable because obviously you you you earmarked a percentage of the person's pension in retirement, but if they stopped paying into it, yeah, then you could basically not get what you thought you were going to get.

SPEAKER_06 5:25

Yeah.

SPEAKER_05 5:25

Um, and obviously if they they died, it it ended. Whereas pension sharing orders at their own right sort of changed everything, didn't they?

SPEAKER_01 5:32

Yeah, it's effectively a clean break, isn't it? Because you're separating the pension, you're giving each person their own pension, so it becomes fairer. And then depends, but that means that people different people can retire at different ages, they might take a different type of pension when they get to retirement. All depends on their health, their age, what they're looking to do, their other income.

SPEAKER_05 5:50

And then offsetting, um, again, a little bit sort of yes, less likely to be used these days, but still still a kind of valuable tool in our in our book to use. What do you what's you know, what's your view on them so far?

SPEAKER_01 6:02

Yeah, so we we try and avoid offsetting where we can. The problem is some people um want, for example, more of the house or more of other assets rather than the pension. Um, so it's understandable, but what you're doing is you're trading a an income in retirement for an a capital asset, and so they're not the same thing. So trying trying to value a house as against an income in retirement, but they're not like for like. And and that's one of the problems that's happened over the years is people haven't really valued how much is one against the other, and how do you how do you value a future income as against a house or or cash and invert or an investment? So it's one of the difficulties is they're not they're not like for like you're we've always called it apples and pears, you're not comparing the same things.

SPEAKER_05 6:43

And it and it's possible then to to actually come off worse, isn't it, in a way, if you if you you know take the offset rather than the pension, particularly with defined benefit schemes, which are very valuable.

SPEAKER_01 6:53

Yeah, and the and the other problem is and it it's often the been the women that have wanted to stay in the house, and but then they have a poor retirement because you often have one person who's got a lot of pension and they can go off, maybe they're a higher earner, they go off and they buy another house and they carry on, then they have a nice retirement. And the person who stays in the house maybe it hasn't got such earnings capacity, but then when they get to retirement, they're gonna have a poor retirement because they haven't their pension is a lot lower.

SPEAKER_05 7:16

So it's still a valid option, but perhaps something to be a bit cautious about from a financial planner's perspective.

SPEAKER_01 7:23

You also have to think about what you're giving up and what you're gaining, really. And is that the right? Sometimes they don't have any alternative, isn't it? Sometimes they need to stay in the house, might have young children, um, sometimes there's not enough other money to share. So um sometimes it's a needs must, you know, you can give people the options and then they can decide what is um the the most suitable for them.

SPEAKER_05 7:43

So the biggest change really in pensions in the last few years has been the introduction of PAG. Um and um, you know, that from my perspective, PAG, you know, it's amazing it's changed the way that we look at pensions on divorce. Uh it and and for for the audience, PAG is the pension advisory group. Um I always describe this to clients as being sort of like the sort of top barristers, uh lawyers who got together with pension experts, judges, uh financial planners, and and sort of produced a manual for how pensions on divorce should be should be looked at. Um what would you say were the top tips from um PAG for um family lawyers?

SPEAKER_01 8:19

Yeah, so certainly the equality of income. Um that's one area where um uh it's fairer to share income in retirement. Um, offsetting it, it's basically a manual for everything. It's about nearly 200 pages, so there's about 16 chapters. So I did go through um when it first came out and spent a couple of weeks reading through it all and being a pensions nerd and trying to understand it, but then trying to translate that for family lawyers, for mediators, for for barristers and judges to actually understand what does it really mean? Because no one really wants to wait through 200 pages, so um unless you're a pensions geek, so so then trying to make it more user-friendly to just to direct people to say this is a headline, this is what you need to think about, and this is a page to go to to find out a bit more information if you want, or ask someone if you're not sure. So, yeah, it's been a bit of a it's been a really helpful guide, and people then do refer to it a lot because it's got a lot of information and it's just evolved over time, really. We had what Pag One, and then about five years later there was a review, and then we had COVID, so it was really just reviewing what what lessons did we learn from the first review, and then they had another whole some of the people from Pag One and then went into Peg Two, and then you know what were the learning things, what have been the court cases since, what what you know, what's changed since um and some really useful kind of appendices at the back with sort of precedents and stuff.

SPEAKER_05 9:40

I mean for me, I used to say to clients, you know, feel free to read it if you really, really have nothing better to do. But for me, the headlines are um that where pension funds are a combined value of over 100,000, especially if they've got those defined benefit schemes you were talking about at the beginning, some of the NHS teachers, uh armed forces, um, you should be instructing a pension on divorce expert, which we call POD.

SPEAKER_06 10:04

Yeah.

SPEAKER_05 10:04

Uh for those out there. A POD is a pension on divorce expert, and we're gonna talk a little bit more about that in a sec, aren't we?

SPEAKER_06 10:09

Yeah.

SPEAKER_05 10:09

Um so that was one of them. The other one was that we should be looking to achieve equality of income in retirement, which you've already mentioned, Simon, rather than equality of capital.

SPEAKER_06 10:18

Yeah.

SPEAKER_05 10:18

Um, but we should also um be avoiding offsetting. Again, we've talked about that a little bit. Um so looking at having a house instead of a pension um in most cases if we can. Um and then the big one I think which changed a lot from a family lawyers perspective, was the idea that premarital and post-separation contributions to pensions um should only really be uh ring fenced and put to one side in the rarest of cases, usually where there's need. So those people with fabulous amounts of pensions, not not people like the general public, yeah.

SPEAKER_01 10:52

Normally it's a needs case, isn't it? Normally, and they need the pension, not unless they're particularly wealthy and they uh and they can just share it without any real um detriment to their lifestyle, really. So it's not going to affect their current future. Not many, you can't you come across a few. But I think too many people try and pin it down. They say, well, I had a year here or two years here where I I paid in and they didn't. So but the judges don't accept that. They say you don't you don't part-share a house, you don't part-share cash or investment, so you shouldn't part-share a uh a pension. So a lot of people ask for it, but it's generally not accepted in exceptional cases.

SPEAKER_05 11:26

And that's quite a big change that PAG bought in, isn't it? That one. Um so that neat moves us night sort of neatly on to talking about what a pension on divorce expert is, and and obviously that's something you can tell the audience about.

SPEAKER_01 11:38

Yeah, so a pension on divorce expert is trying to understand what the pensions are, looking under the ball at Bonnet as to what is it a defined benefit, is it a defined contribution? And sometimes you find these odd hybrids where you get a defined contribution with a defined benefit underpin, you might get the best of both worlds, there might be some guarantees in there that you're not aware of, and most clients don't really know what to look for or what these mean. Sometimes it's it's a one-liner in a you know, in a long document that you have to sort of weigh through and find out. So, what a pension on divorce expert does is writes to them, they write to the schemes, they get the inform the correct information, they then work through it, and then they there's so there's two things what they're trying to do is one, how much should you share? So, what is the combined value, and then how do you share that equally between both parties, uh, normally on an equality of income basis. And then the other thing is how then where do you take that money from? So if one person's got, say, four pensions, how do they share it? You know, do they share it from one or do they share it from two? Um, so that yeah, so it's it's two things. One is how much they share, and then where do they share it from? That's that's quite key.

SPEAKER_05 12:39

And actually that's a really interesting point because I've had clients come in before that have said, well, I should have half of each of those pensions, and and then getting them to understand actually that's not necessarily the most cost-effective way of doing it. No. Sometimes the pensions have different benefits, there's costs involved in pension sharing orders being done. So you know it could be quite common to just choose, say, one pension to make the order against, which combines all of the totals.

SPEAKER_01 13:02

Yeah, and and it's normally so the person getting the money often doesn't really care where it comes from, it doesn't really matter to the person receiving the money, it makes a big difference to the person giving up the money. So if they've got, for example, defined benefit, they've got a guaranteed income in retirement, and that's normally more valuable. So the normal way you start off with is normally you normally share the defined contribution first because you're trying to destroy the least value. Because if you share the wrong thing, you can you can end up with less value combined than you would than where you started. So you know, if you've got um a combined value of 20,000 a year income and then you share it, you might end up with 18,000 because you've destroyed some of that value, though it doesn't benefit either party. So you want to try and preserve as much value as you can out of the pots.

SPEAKER_05 13:47

Actually, one of the things that we we could pick up on quickly is uh there's been a lot of press, obviously, and some clients will have seen this about McLeod and the effect of that on defined benefit pension scheme to public sector ones in the main. Um tell the audience a little bit about what McLeod was and what it's done. Oh, that's a that's a can of worms.

SPEAKER_01 14:04

So it's basically um age um discrimination. So it's where people get into retirement. The government announced back in about 2014 that they could um people could work later. Um, and then what happened is they came out of one scheme, they then set up something called the it's mainly called the career average scheme. But if you were within 10 years of retirement, you could be in the old scheme still, because it was it deemed to be better. The problem is that then other people younger people said, well, hang on, that's discriminating on age. If you were sort of 50 and over, generally you got in left in one scheme. If you were younger than a certain age, you then came out of it and then went into the scheme that was perceived to be of less value. Um and that went to court and basically said, Yeah, it is age discrimination. So what happens now is people are in two schemes, but then you get the benefit of either one. So as you get to retire, when you get to retirement, they say, here's option A, here's option B, which one do you want? And it's usually reasonably obvious because one is better than the other, you get a higher pension and a higher lump sum. Um or you might get a higher pension and a lower lump sum, and you just have to work out which is better for that person based on their age and their health. But it's complicated, but it it's easy in the fact from a client's point of view. You just get op you just get two options and you just choose one or the other.

SPEAKER_05 15:15

And I think they seem to have caught up in the main now, don't they, with the backlog of calc. We had a period of time a couple of years ago where it was taking forever to get values out of the pension companies because they were sort of midway between doing those calcs.

SPEAKER_01 15:27

Yeah, the main problem is that you're you're trying to calculate two different types of schemes for millions of members. I mean, you think how big the NHS is and the civil service and the teachers, the armed forces, you know, they are the the bulk of the population. So you had you had a f a few number of people calculating millions of calculations, and it's really complex. And there just wasn't enough people around to be able to do all these calculations. Um so it's taken a long time, and then each each um you know the civil service is different to the NHS and the NHS is different to the teachers. So on paper, they look similar, they've all got different rules, and they're all run by different people. So that's where it became quite complicated. But I think we've got through most of that now.

SPEAKER_05 16:05

It seems that way, it seems to be catching up. So the obvious question that that people are going to ask is, well, okay, it sounds like I might need a pension on divorce expert, a pod. How do I go about getting that? Um, and you know, how how do I how do I how do I achieve that?

SPEAKER_01 16:19

Yeah. So um so pension on divorce expert is has to be instructed, and we can talk about a letter of instruction in the minute, but so you need to ask someone to do some calculations for you. So pension on divorce expert, they were mainly called actories in the past, but the reason the pose the pension on divorce expert name came about is because in in PAG two, one of the leading judges said we need to come up with a name that incorporates other people. We can't just call them Actor Era reports because there are non-actories doing the reports. So that's where the name came from.

SPEAKER_05 16:48

That was where the name came from. I always wondered.

SPEAKER_01 16:49

So one of the one of the uh the co-chair of PAG um came up with this name, and not everyone likes it, but it pension on divorce expert says what it, you know, does what it says on the tin, so it's sort of reasonably obvious. So there's a difference between you've got some financial planners who do it, but they're generally not financial planners that they're sort of back office um people that would do the calculations and not out giving advice. So a pension on divorce expert has to be neutral, really. So they're given an instruction, so this is what we want. We want equality of income at a certain age, or we want offsetting. And they're looking at so they're writing to the schemes, getting the information, and then they're deciding how best to share those fairly between the couple without any influence on the couple, and also they don't know anything about the background of the couple, what house they've got, what other assets they've got. They're literally just doing the number crunching for the pensions based on what you give them. So um you've got to give them a good instruction, because obviously if you give a bad instruction or it favours one person or the other, that's what you get back. They're not gonna ring you up and say, Are you sure you want this because you know it favours a husband or wife? You say, Well, you instruct them, that's that's what you're gonna get back.

SPEAKER_05 17:53

Yeah, so it's about telling them the right things to get that get the answers that you just want to do.

SPEAKER_01 17:57

That's the key thing, yeah. We all say rubbish and rubbish out. If you ask for a bad instruction, you'll get a bad answer. And it won't, and then sometimes it might suit one party more than the other. So it's it's it's it's offering of it's writing a fair instruction to get a fair outcome. That's what I'm saying.

SPEAKER_05 18:11

And I suppose it's fair to say that in most cases clients will come to a a lawyer like me uh to to help them to identify a pension on divorce expert to use, and then to help them with that letter of instruction. But it is possible, is it not, for clients if they want to to go directly to pension on divorce experts. Some companies will do that.

SPEAKER_01 18:30

Some will do it. The problem is that they're dealing with people who don't understand what their pensions are, and then they might they won't know what to ask. So that is difficult. And and it's a quite small industry, there's not many pension on divorce experts, not many firms that do it, it's quite a small group of people. They'll they'll work roughly the same, they'll charge roughly the same, there's not a great deal of difference. Um, what we have found is there's a few more people trying to offer it, so there's been a few more other firms coming into the market. Um, and also we're trying to work out um, do you need a pod? So, although PAG does say there are certain criteria, I've had some where they've been a million pounds plus, and you would say, Well, that definitely ticks a box of needing a pod, but actually you don't. Sometimes they might be the same age and they might have similar pensions. So, what are you really trying to achieve? You've got people that are at at or near retirement, and again, they they might have different views, but sometimes you just add it up divide it by two. So, I've seen some where people have gone to a pod, got it back, and you go, Well, I haven't really achieved anything, I haven't got anything more than I could have just done by adding up and dividing it. So, you've got to understand what the pensions are. Um, do you need one? So, some of the work we've been doing is sort of triaging cases to say, rather than going straight to a pod, and then what I know a lot of solicitors do is say, Well, go and ask three different experts to quote, and then we'll get them and off, and people just choose the the cheapest one. I mean, you know, that you it's hard to determine which is we are better. So they're all doing roughly the same thing because they're all following the same rules. Um, so yeah, it's it's do you need a pod in the first place?

SPEAKER_05 19:55

Is we're getting more questions on and I think that comes actually off the back, there's been quite a lot of um sort of media about that, hasn't there? That that PAG coming in, every single family lawyer suddenly said, Okay, tick box a hundred thousand, okay, we must have a pod report. And actually, now more recently, people have been saying, well, hold on a minute, as you say, yeah, if you've got a couple who've got exactly the same type of fund and it's exactly the same value, it could it might well be over a hundred thousand, but yeah, d what do you need a pod for? And and that's where someone like you comes in and assists firms like mine with with being able to advise clients in this particular case, do you need to have a pod report?

SPEAKER_01 20:31

Yeah, I think that's big, and also you if you're spending, you know, two and a half, three thousand pounds on a report that no one really wants and understands anyway, you end up with a nice 30-page report that someone only someone like me will understand. So then you ring me up and ask me to explain what it uh what it means. So you get clients asking for reports they don't really want to pay for, that they don't really understand. Um, and so yeah, the so the first thing is do we need a report? And then how do we set the the criteria to be quite narrow to it saves money? Because I think historically people have just sort of thrown everything at it and said, let's ask for everything, let's ask for multiple ages and multiple options. I've seen that and then you end up with eight different calculations which no one really understands, and it just becomes more complicated because obviously one side wants to save money by going for the the cheapest version, and then someone else wants to go for the highest um amount, and then you end up with some compromise in the middle. So it's easier often, particularly in things like mediation, to agree the format and agree what what is it you're actually looking for? When are you both likely to retire, and then agree that and then just ask for one thing um that you can they can both agree on? Um, that's make keep it simple. I think people have overcomplicated it over the years, and no one really understands what the result is. So no, absolutely no, you you're quite right.

SPEAKER_05 21:39

And I think that for me, that's how I've always worked with clients is just try and keep it as simple as possible so that everybody understands what they're doing. Um, absolutely. Um, so we talked a little bit about offsetting earlier. How would how would you go about doing an offsetting calculation? I mean, back in the day, there used to be sort of like you you discount a bit here and a bit there, but if you were offsetting In a case say the clients definitively wanted to do that. How do you do those calculations as a financial planner?

SPEAKER_01 22:07

Yeah, I mean it's n there's no easy way. What the um a pod would have previously done and would normally do is actually do the equality of income first and then work out what is an offset from that equality. Because you've got to actually be able to do one calculation, you can't do one on its own very easily. You could probably do it if you've only got money purchase, so a defined contribution, where you've got known values and and there's no complications, you could add it up and say, Well, okay, there's the the difference, then you take off a bit of tax. So what we normally assume, if they're not retired, you take you assume that the person who's got the pension is gonna keep is going to take 25% tax-free cash, and then when they retire, there'll be a basic rate taxpayer. So the calculation is we normally take off 15% for tax for a basic rate taxpayer and 30% for a high rate taxpayer. Um that that's a sort of simple calculation, and that's probably oversimplifying it. But you you can do that if you've got, let's say you've got one person who's got a hundred thousand pound pot, and the other person's got no pension, and they want to so offsetting is means that both people keep the pensions that they've got, but one person's got more pension than the other. So how do you come to a compromise to say, well, if I want more of the house and you keep the pension, how do we do that? So um the problem is when you've got multiple pensions and you've got defined benefit and defined contribution, uh adding up and there isn't a simple answer to that, it does become a bit more complicated, which is why you often have to get the pods to do the do the calculations and ask for an offsetting in addition, yeah, in addition to the workflow.

SPEAKER_05 23:36

That's what I would do in those situations usually. And and generally with clients, I I'm sort of saying you know, I would recommend equality of income, that's what PAG tells us. But if they're absolutely adamant, then we might ask as an additional for the offsetting calc.

SPEAKER_01 23:49

Yeah, because they they sort of need to know what they're they're giving up and what they're uh attaining, aren't they? And how what does it mean to them? So one of the benefits of the POD is it tells you what the income in retirement might might look like. So that's useful from a financial planning point of view because if you can say to someone, right, when you retire, you're going to get X amount of pension, is that enough to live on? So it's a sort of the POD isn't giving financial planning advice, but the POD report is really useful to give financial planning off the back of it because it gives you a lot of answers that says, This is when you're looking to retire, this is the type of income that you might get. So it just it it's just helpful to have that level of information.

SPEAKER_05 24:24

And that's something that someone like your firm can really help with, where you can sit down and model somebody's retirement, can't you, if you've got that sort of information.

SPEAKER_01 24:31

Yeah, and then also then what do you do when you get to retirement? So we're finding a lot of people are uh are either sort of mid-50s and older, so they're sort of at the age where they've either retired or they're just about to come up to retirement, and they're saying, Well, I'm gonna get a pot of money, but what do I actually do with it? It's alright saying I'm gonna get 50% of something, but I don't know what 50% is, and I don't know what I'm gonna get, and I don't know what to do with it when I get it. And so then you can talk to them about uh, you know, do you need a guaranteed income? So the two options really for retirement are an annuity, which is just buying a guaranteed income for the rest of your life, and there's a there's a number of different options, but that that just particularly for the weaker party who's never really had any involvement and doesn't want any investment advice, just buying an annuity is quite straightforward. Um, it's an income for the rest of your life. You can buy a level one or you can buy an in-in-index where it will go up. So we talked to them about what what sort of level of income you need and how much money would that cost to buy that income. And the other option is what's called an income drawdown, where you effectively draw down on it, but you still have to take some investment risk. And that's the problem, is if you don't manage that properly, you might either be too high risk, you might be too low risk, you might strip it out too quickly. And I think the stats show that if people do their own income drawdown, they tend to run out of money about five years before life expectancy. Oh no, that's not good. And that's the problem. So where you where you've got an advisor, you you're very conscious of how long they might live and then making sure they model that through their lifetime. If they do it themselves, they often run out of money too quickly, they spend it too quickly, thinking I'm living for now and not for in my 80s, and then they get to their 80s and they're still living and they're thinking, oh now I've run out of money.

SPEAKER_05 26:04

So that no one needs that.

SPEAKER_01 26:05

No, so that's the problem, of course, and you're not working then, are you? So you can't then create any more, you can't create any more money.

SPEAKER_05 26:11

So that's really one of the main things that a financial planner like yourself can do is to model somebody's future and then help them to manage the investment they might get through a divorce that I might help them with to live.

SPEAKER_01 26:23

That's that's the key thing, really. It's always the person who's getting the money. So what am I actually doing with it? And actually, we find often the person giving away the money wants to make sure the person getting it is going to make make sense of it, you know, gonna do something sensible with it. Because often, if you have money left when you die, that might then go on to children or grandchildren. So, you know, it's still family money at the end of the day. It might go from husband or wife to wife to husband or one partner to the other, but ultimately that might then go down through other generations.

SPEAKER_05 26:49

So yes, and that's true actually, with um with non-defined benefit pensions, you can still, can't you, make provision for your children and other family members.

SPEAKER_01 26:57

Yeah, so I mean what happens when on a married couple, you usually leave it to your spouse, and then if the spouse doesn't spend it all, they might have rental property or they might have other assets, then they might decide to leave their pension to to family members, so it might pass down generations. Um but obviously if you then get divorced, you've only got yourself effectively. Um but then what are you going to do with that money? They still want their children or their grandchildren to benefit from it.

SPEAKER_05 27:19

Absolutely. Um, so we've got our paid report now, um, and um kind of to a certain extent, I would then bring in somebody like you perhaps to help me with that, to give me some advice on that, to perhaps speak to the client about how that might look. And then my next job would be to get that into the court order. So um, for the sake of the audience, um it's quite a lot of stages, isn't there? So we we've you know we've collated our values of our pensions, we've um we've drafted our letter of instruction to our POD, we've hopefully got our POD report back, and you've hopefully given some input or someone like you has into what that means. And then the next step is to get that into a court order, which is where somebody like me comes back in again, don't they? So it what we then do is um we have the consent order or the court order, which deals with your financial remedy claims that you can make uh and um the orders that the court can make. And the court order itself will include a pension sharing order. Uh it's a relatively standard clause that's been drafted in the past by the president of the family law division. And then we have the annexes that go with that. Um, and I always describe to clients the annex as being a bit like the actual forms that help the pension provider to do the actual pension sharing order.

SPEAKER_01 28:32

Yeah, it's basically their instruction to say you've got to share this amount with this person now and then implement it.

SPEAKER_05 28:38

And actually, you can have, as we talked about earlier, didn't we, about having more than one pension sharing order, then you can have more than one. So the pension uh the the court order itself will only have the one pension sharing order in it. Um, but there may be a number of annexes to quite often I find it with things like NHS, you might have uh the 1995 scheme and the 2015 scheme with orders against both of them, and therefore you have two annexes.

SPEAKER_06 29:03

Yeah.

SPEAKER_05 29:03

And so your court order might refer to two separate um references, and then the annexes will have the different details, and you can have different percentages, can't you?

SPEAKER_01 29:12

Yeah, they're different parts of the scheme.

SPEAKER_05 29:13

That's important for us to explain, actually, isn't it, about how um the the calculation that you get will always be a percentage, and you might want to talk about that a little bit.

SPEAKER_01 29:22

Yeah, it's because um it it creates fairness whether the values go up or down, because if you get a percentage and it goes down, both parties still end up with a lower value, or if it goes up, both parties have ended up with a higher value. So the the problem that was in the past, if you wrote it and said you're gonna get X amount of pound, if the value goes up, then one person loses out. So you can't define it by an actual p pound, you have to do it as a percentage of the pension because it then gets revalued. So you do all the work up front, you agree it, we call it it's a moving target because you never know the exact amount until the day that it gets transferred out. And because there's a window of the work we do, the work you do, it then goes to the court to sign it off. And it's important just to note that you have to have a court order to share a pension. If you can't do it yourself, you have to get someone to actually do the court order. And it and it's true that you don't have to appear in court yourself, do you? I think people worry about going to court, it's just the court signing it off, basically.

SPEAKER_05 30:18

Yeah, yeah. I mean, if you've come to an agreement yourselves, um you know perhaps you've had the paid report done, you've now agreed what pension chairing order is going to be made, then it's a it's a drafting exercise and then it's a it's a paper exercise. In fact, it's not even paper anymore, it goes to a portal, it's all online. And clients find that really um tricky sometimes. They say, Well, where's my paper order? Well, you don't get one anymore, it's it's an emailed copy. Yeah. Um, but the time frames are quite interesting. I've had um clients in the past say to me, Um, well, why you know the pension sharing uh the pension training report said X, but why is it a percentage? And I think you've explained that really well. But the other one is the time frames.

SPEAKER_06 30:54

Yeah.

SPEAKER_05 30:54

So, you know, from the minute you have your um agreement, as you said, we have to, I I draft up an order, I draft up some annexes, then we have to send those to the pension company to agree because it isn't impossible to have got something wrong. And if you've got it wrong and then the court makes it an order, then they won't implement it.

SPEAKER_01 31:14

And then you can't unwind it because it's almost impossible to unwind a pension shareholder once it's been agreed.

SPEAKER_05 31:18

Which is time to know very, very stressful. Um, and and then they have a set number of days to come back and say, Yeah, are they happy with it or not?

SPEAKER_06 31:26

Yeah.

SPEAKER_05 31:27

And then hopefully they do. Uh, then it goes off to the court, and then it could be in the court process for days, weeks, months, depending on the backlogs. And then when it comes back from the court, then there's still more waiting because you have to wait 28 days uh before you can apply for your final order uh on the divorce, and it's only then that the pension sharing orders take effect.

SPEAKER_01 31:48

Well, it doesn't even take effect then effect. I mean, the the the clock starts, but the pension company's got four months when they get all of the paperwork. And what most people misunderstand it, and and we see that often, the person who gets the court order thinks, I've got a piece of paper, the magic pension fair is just gonna sort this out for me. You know, it'll just happen. And then what hap- what actually happens is the the person who's giving the money away, um, they they'll the the scheme will write to the person and say, You're gonna get some money, where do you want it to go to? Now they've got to put it somewhere, so have they got a pension that they can top it up? A lot of companies won't. If they've got an old company scheme, they won't take it. So then do they have to set up a new pension to then take it? And then when they get the new pension, where do they invest it? So one of the problems is that each pension company's got to write to each other and sign each other's forms because it's a legal document and they've got to know it's come from a pension that's approved and it's got to go to a pension that's approved. So that's one thing. Um, but then also the people really need advice. Uh and a person getting the money needs advice as to what they're gonna do with it. Because sorry saying hey, so here's a pea piece of paper, you're gonna get 50% of something, but that person's then got to do something with it, and they've got to fill a form in, so where's that gonna go? And so the problem is that people leave it till quite late down the line, and then right at that stage go, what do I do with it? And that the clock's already ticking then because the scheme can't implement it until four months, uh, within four they've got to do it within four months of when all the paperwork's in. So if they've then started the paperwork and they don't know where it's gonna go, and then they come to someone like us, we have to start from scratch, because we don't know them, and then we have to onboard them as a client, understand what they're looking for, when they're gonna retire, what their risk profile is. That whole process can take us a couple of months, and then they finally get the application forms to send off, and at that stage the scheme has then got four months. So from the day that you've signed it off and they come to you and go, brilliant, we've got the pension sharing annex and the order, happy days. We can easily add another five, six, seven, eight months on. I'm dealing with some cases from eight eighteen months ago where you know we started the conversation. Um, it took a year to get through the court because the couple couldn't agree and you know, whatever, and then it's taken another six to twelve months for the money to land in their in their pension account, and they and they don't realise that. It's you know, and one of the things we found is that clients say, Well, I checked out then, you know. I'd what once I've you know I spent all my time with my lawyers and I've you know I've got through it and I'm you know happy days I've moved on, I've bought another house, whatever. And now we're adding another six months onto that process. But they've mentally checked out. They said, I thought this is all done, I've got the court order, I've got my piece of paper, happy days, you know, and they don't realise it's actually still there, they're then responsible for then taking the money and doing something with it.

SPEAKER_05 34:22

And actually, ironically, I've found in my career that it's generally the person who's going to receive the money that then holds everything up. Yeah, um, you know, quite often. Yeah, ironically, because they fought really hard to get this pension sharing order.

SPEAKER_00 34:34

They think it's done.

SPEAKER_05 34:35

They think it's done. And then you you find yourself sort of, you know, I quite often will have I will obviously have deadlines and and sort of uh diary reminders to to check on it. And then you find out that actually the pension, the person who's going to receive the pension credit hasn't returned the forms, um, hasn't instructed a financial planner, and then it, you know, you ticks by and ticks by and ticks by the way. Months would go by, yeah.

SPEAKER_01 34:55

Because they don't think it's any important, because they think it's all happening behind the scene. They think, oh my lawyer's sorting it out, or someone's doing something for me, or the court's sorting it out.

SPEAKER_05 35:02

And that can be a real problem if if the if the person who's paying into the pension is still paying into it, because we then come back to that percentage.

SPEAKER_01 35:09

The other problem is that the the person who's given the money away can't retire or take any benefits or do anything with their pension until because the scheme know that they're going to be paying money out, they just don't know when because they haven't got all the paperwork. And so I've had some where the the husband, for example, is really chasing and and being quite nasty to the wife because they're saying, you know, you need to take your money, but they haven't gone through that whole process because say they've been sort of mentally checked out, and so the husband is putting pressure on the wife, for example. The wife has never done never had a pension before, she doesn't know where to invest it, so they're start starting from scratch. Um and and that delays it. So that's why we always say try and get involved early, because you can do some of that work alongside the work you're doing, because you know roughly what the pension's worth. You've got a vague idea of what it's gonna end up looking like. You know, if it's a million pounds and they're gonna get half a million, or if it's fifty thousand, they're gonna get twenty-five thousand. You've got a ballpark to work with, um, and you can we can do some planning onto the back of that. Um, the problem. So I've got one at the moment where we started maybe 18 months ago, we've gone through the whole process and they've taken their time. They, you know, they had a long time to think about it, we've gone backwards and forwards, and then they've understood where they are. And then when they've got the final order and it's all been agreed, they said, Well, you've done all the work for us, I understand where it's going to go, I understand what I can do with it, I understand what my income will be once I get that order in. Um, and so they're quite happy because they've done it in a nice, calm manner in in their own time. And another one I can think of, exactly the same, but they came in right at the very end, they'd mentally checked out, and it and then the husband was chasing, the wife was getting agitated because she was feeling like she was being really rushed into a decision. You know, we were rushed, the solicitors were getting chased, everyone was it was sort of getting pushed to do stuff. Um because the wife had checked out and just didn't realise that she had to do anything. She thought it all would all happen. And so that's the problem, is getting involved early can make a big difference because people can take the time and and do it sensibly. If you if you all do it right at the very end, you everyone just feels like they've been rushed into it, and then you get one person saying, Well, I can't take my benefits until you take yours, and you haven't decided where you're taking yours, so you know, get get on with it sort of thing, and everyone then getting agitated.

SPEAKER_05 37:13

So it's the important part really of having financial planners involved at the get-go, particularly with those valuable pensions. Um, sometimes for perhaps that they're not so valuable pensions, it's the sense check. Do we actually need a pension on divorce expert report? Um, and then for those where we are clearly going to have one, it's making sure. I mean, I will always identify to my clients if I think they're going to need to have a pension sharing order, you need to have a financial planner on because you're going to need some advice on where to take this money.

SPEAKER_01 37:37

What to actually do with it. Yeah.

SPEAKER_05 37:38

Absolutely, that's critical.

SPEAKER_01 37:40

You don't always need it. I mean, sometimes we have a chat with people. You don't always need it. So, for example, if they're a teacher and NHS. So the difference is some schemes you can only become a shadow member. So if it's a public sector generally, um, most public sector, because it's taxpayers' money effectively, and they're not giving out any money, you're you're just getting an income in retirement. So if you're if your other half is a teacher or um uh an NHS worker, you become a shadow member. So the person getting the money becomes a shadow member of that scheme. So then they divide it. So let's say it's 50-50. The person who's giving the money away loses 50% of their benefit, the person who's getting the money gets 50%, but they both become a shadow member of that same they both become members of that same scheme. So they don't really need advice because they're just gonna join that scheme anyway, and they'll just get half of what it is. Um, it's when they can't join the scheme and then they have to transfer out because the scheme says we're not going to keep the money, you have to go somewhere else. Then that's really when they need advice as to what they're gonna do with it going forward. And so we'll just try to try and find the most cost-effective option for them based on their age and and you know their attitude to risk.

SPEAKER_05 38:43

And that's actually a really good point. Um, looking at clients' priorities, which will be very different at different stages in their lives, a young couple may not be particularly bothered about retirement, but certainly when you get to my sort of age, near retirement.

SPEAKER_01 38:55

Start to think about it a little bit more. Yeah. That's right. I mean, someone in their 40s or or early 50s who can't take the benefits, they often just would say park it. So they'll say, Well, move it to a pension, we'll invest it, but you can't take you're not gonna take it for 10 or 15 years because you're still working and you don't need the income. There's a big difference between somebody who's in the late 50s and early 60s who maybe has given up work, um, maybe who hasn't got any income or they're working part-time, they just haven't got enough income to get by, then they need the income. So that's where we've done a lot of work on things like annuities or income drawdown. So you're gonna get some money, what do you want to do with it? How much money do you need? You know, will will that buy enough income for your retirement? Uh the ideal thing is of course if they can get more income than they actually need. So that's ideal because um you can say, well, actually, you if you need 30,000 a year and your pension will buy you 40,000, then take the 30 and keep some of it back, and maybe you can leave that for your children or grandchildren, or or tap into it in the future if you want nice holidays or go on a cruise or a new car or whatever. So um it's understanding how old they are, what's their health like, what's their other income, what assets have they got, and then what does their what does their sort of future look like? Um and understanding all that, and then then what do you do with it?

SPEAKER_05 40:05

Yeah. And I think I think what we're learning from this as we come to a conclusion um today, Simon, is that pensions are not straightforward.

SPEAKER_06 40:11

Yeah.

SPEAKER_05 40:12

Uh there's not a one size fits all. Um it's really important um where there are pensions involved to to have a financial planner involved pretty much from the get-go. You certainly need a a um a lawyer to help you um to navigate through the the poker, all the legal side of it. Um and that where I started from by saying really that quite frankly, pensions can often be one of the most valuable assets of a marriage. People always think it's the house, don't they? But uh in a lot of cases, particularly for those later on in life, particularly for those with defined benefit schemes, um uh it can often be the biggest asset and the biggest biggest facilitator of a of a good retirement, which is let's face it, what you guys want for your clients and what we ultimately want for ours.

SPEAKER_01 40:56

Yeah, people in a nice retirement, don't they? You can't uh you can't really earn any more money once you're retired. So it becomes difficult, yeah.

SPEAKER_05 41:02

Summon, you've been an absolute star. Thank you so much. Um uh I hope everyone's found that really useful, and um, no doubt we will continue our really good working relationship. Okay, thank you.

SPEAKER_01 41:10

Thanks, Burston.

SPEAKER_04 41:13

You've been listening to Head Notes from Whitehead Moncton. If today's episode sparked questions about your business or personal matters, our team is here to help. For more insights, resources, or to speak with one of our solicitors, visit www.whitehead monkton dot co dot ukrainically.