Understanding the ins and outs of pension sharing

Rosemary Carter urges solicitors to give clients sound advice in divorce settlements

The imminent arrival of pension sharing has been anticipated with all the excitement of a product launch.

'New improved' pension sharing may, indeed, tackle the areasoffsetting and earmarking could not reach.

Offsetting of one partner's pension share against other assets is flawed in that it may leave one person with no pension arrangements and inadequate assets to offset by way of compensation.

Earmarking is tied to the pension-holder's life and thus prevents a clean break.

However, despite these flaws, the existing arrangements will, for some couples, continue to offer the best solution for their particular circumstances.

Of course, the government is right to encourage us all to make adequate arrangements for a secure retirement.

But solicitors should still be focusing on giving the best advice to clients on negotiating divorce settlements according to their particular priorities.

While flexibility is to be welcomed, pension sharing should, therefore, be seen for just what it is - yet another tool to help construct a fair solution between the couple on divorce.

Excited by the idea of deadlines to be met, the media is advising people to speed up or slow down their divorces to avoid or benefit from the new arrangements, dependent on their status.

In one of life's most stressful experiences, divorcing couples are unlikely to be well served by the need to fit their arrangements around an administrative timetable.

If someone is served with a petition by a spouse hoping to avoid pension sharing, all is not necessarily lost.

Unless a decree nisi is made before 1 December - which is now unlikely - they could simply issue their own petition after that date and ask the court to give directions to consolidate.

It is almost certain that the court will allow this approach because it will enable fairness to be achieved in relation to pensions.

The issue for family lawyers is whether they are sufficiently well informed to advise on the implications of the range of choices relating to pension arrangements.

Greater flexibility has brought with it greater complexity and the challenge for solicitors will be to help the client to identify the most suitable set of arrangements without falling victim to 'pension tunnel vision'.

The involvement of an independent financial adviser (IFA) will be crucial to help evaluate the best solution to the pensions problems in each particular case.

In the new framework, solicitors will need to obtain the facts about pension arrangements and other assets from information provided voluntarily or following the issue of financial proceedings as early as practicable.

The cost of this fact-finding exercise needs careful consideration by solicitors and clients to ensure that it is proportionate to the couple's assets and income.

Having ascertained the facts, the next step should be to consider the issues as they are seen by both parties and to consider the possible solutions.

Pension sharing should be considered alongside the other options, but it will also be essential to consider offsetting the other assets and comparing the possible solutions.

If pension sharing is the outcome of this exercise, then the question arises over whether an internal transfer is available and, if so, should the client opt for an internal or external transfer of their share of the fund? If an external transfer is preferred, to what pension arrangement should they transfer? These sorts of considerations will take solicitors into a new realm and the role of the IFA will be crucial, given the long-term importance of these decisions.

A record of the advice given to the client should be kept carefully on the file.

As well as the additional costs of financial advice, it should also be remembered that there will be costs connected with internal and external transfers from the fund.

An external transfer may be cheaper, but there will also be additional costs involved in setting up the new pension.

For solicitors, there will be a number of important procedural factors to consider when navigating these uncharted waters.

Crucially, if a client wishes to proceed with a pension- sharing order, then the best practice will be to prepare a draft order and submit it to the pension provider for consideration.

This will avoid orders which are incapable of implementation being made by consent or following a hearing by the judge.

The Minister of State for Social Security, Jeff Rooker, says every one of the estimated 160,000 couples who will divorce next year will need the help of a lawyer to ensure they are getting the fairest settlement possible (see opposite).

This is undoubtedly true as pension sharing adds significantly to the complexity of the advice each member of each of these couples will need.

However, their access to reliable and constructive advice on divorce is developing into a key issue in family law.

Many of these estimated 160,000 couples will be dependent on funding from the Community Legal Service and some will struggle to find local solicitors who are willing to work for them on this basis.

Those solicitors who do publicly funded work must be able to justify their additional work in weighing up the pension options, and these costs will need to be met to avoid a further progression to a two-tier service for some clients.

While Mr Rooker acknowledges that good legal advice is necessary, he now needs to convince his colleagues in the Lord Chancellor's Department to provide the funding to enable all divorcing couples to have the benefit of that advice.

Rosemary Carter is chairman of the Solicitors Family Law Association