October 3, 2024 • 49 mins
Unlock the secrets to fair pension sharing in divorce with expert Richard Nobbs! Learn how to simplify the process with the new PAG 2 report. Don't miss this essential episode!
Richard Nobbs
Richard is an actuary and the owner and a director of Excalibur Actuaries Limited, one of the leading pensions on divorce expert firms, with a team of over 20 including 6 actuaries. He is a member of the Pensions Advisory Group – colloquially known as PAG, comprising judges, barristers, solicitors and pension experts and who have provided extensive guidance on how to deal with pensions on divorce. He is chair of the PAG valuation working committee.
Richard is also a member of the Academy of Experts and Expert Witness Institute.
On a lighter note, he is married with two daughters and in his spare time Richard is an expert skier and an enthusiastic, if less accomplished golfer and photographer.
https://www.youtube.com/watch?v=ouEnvDmo7U4
https://www.advicenow.org.uk/guides/survival-guide-pensions-divorce
Tamsin Caine
Tamsin is a Chartered Financial Planner with over 20 years experience. She works with couples and individuals who are at the end of a relationship and want agree how to divide their assets FAIRLY without a fight.
You can contact Tamsin at tamsin@smartdivorce.co.uk or arrange a free initial meeting using https://bit.ly/SmDiv15min. She is also part of the team running Facebook group Separation, Divorce and Dissolution UK
Tamsin Caine MSc., FPFS
Chartered Financial Planner
Smart Divorce Ltd
P.S. I am the co-author of “My Divorce Handbook – It’s What You Do Next That Counts”, written by divorce specialists and lawyers writing about their area of expertise to help walk you through the divorce process. You can buy it here https://yourdivorcehandbook.co.uk/buy-the-book/
To learn more about our podcast sponsor Ampla Finance – access their product guide here: https://bit.ly/3Ieqmuc
Or complete enquiry form https://bit.ly/3W4J7pz and one of the team will be in touch.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Tamsin Caine (00:06):
Hello and welcome to the Smart Divorce Podcast.
This is series nine and in thisseries we're going to explore
what makes up the working weekof various different
professionals who work in thedivorce world.
You'll start to understand whatthey do, both during the time
that you see them, how theyprepare for meetings, and what
(00:31):
work goes into the work of adivorce professional outside of
the time that you spend withthem.
I'm really looking forward tosome amazing clients in this
series.
We talked to a barrister,family solicitor, financial
planner, divorce coach andreally hoping that you're going
to enjoy it and get a lot fromit as well.
(00:57):
Hello and welcome to anotherepisode of the Smart Divorce
Podcast.
I'm really happy to be joinedagain by Richard Nobbs, who is
absolutely convinced that nobodywould want to listen to an
actuary chatting about poetrybooks, but actually it's been
one of our most popular episodeswhen he joined us previously,
(01:17):
so we've invited him back totalk to us about some of the
complexities around instructinga podriport and also to give us
a brief update on there-released or the new version
of TAG.
Welcome, richard, Richardlovely to see you again.
Richard Nobbs (01:35):
Yes, great to be back.
Tamsin Caine (01:36):
Fantastic.
You look like you're in theArctic or something from your
background.
Richard Nobbs (01:42):
Yes, I was in the Lingen Alan alps north tip of
norway um doing some ski touring, so climbing up the mountains,
uh, for four or five hours orsomething like that, and then
skiing down in half an hour.
So, uh it was, it was differentand, um, just the scenery was
spectacular it looks pretty.
Tamsin Caine (02:03):
It looks pretty amazing'll need to join us on
YouTube if you want to have alook at Richard's background so
you'll know what we're talkingabout.
So since we last PAG2, hasbeen released.
I know that sets out a draftletter of instruction to
instruct codes a draft letter ofinstruction to instruct codes
(02:28):
and we're going to talk aboutsome of the niche areas around
that instruction letter.
Can you tell us a bit moreabout how that instruction
letter can be used in practicethe version that's in Pag2?
Richard Nobbs (02:40):
Yeah, you've got in Appendix E in the PAC report
the letter of instruction.
It's also got a number of notesin there, so it gives you some
directions or some suggestionsas to what retirement ages that
you might want to use, whetherto ask for equality of income,
(03:00):
equality of capital offsettingapproaches, income equality of
capital offsetting approaches.
And just to set out how theletter of instruction should be
laid out, by either instructingsolicitors or it can easily be
adapted if people are acting aslitigant in person.
But if they can have reasonablystandard questions along those
(03:23):
lines, they'll find that theprocess is a lot easier.
If you start askingnon-standard questions, you will
find that the costs can easilyescalate quite dramatically and
you might find that the timetaken to actually respond to all
of those questions can be a lot, lot longer.
So making sure that there isstandardisation effectively
(03:49):
across the industry fromsolicitors and also from PODEs
should make everybody's lifeeasier.
Tamsin Caine (04:00):
Let's hope so.
Let's hope so because I thinkgetting the letter of
instruction right and asking theright questions at the right
time, the right information thatyou want back, will not only,
as you say, keep the cost andtime down, which is something
that everybody's keen to do whenit comes to the PODE report,
but also simplify the reportthat they get back and make the
(04:23):
information easier to understand.
Richard Nobbs (04:26):
Yeah, one of the things that concerns me is the
length of PODE reports.
I'd much rather provide areport which deals with a
smaller number of issues smallernumber of retirement ages,
smaller number of calculations,fewer tables.
That means that there's less tonegotiate as far as the
(04:46):
individuals are concerned.
It means that it's easier forus to provide the report.
There's less informationgenerally that is requested from
the pension schemes and itaccelerates the entire process.
It normally takes a few monthsto actually produce a POED
report, from instruction to thereport being issued, and the
(05:12):
more complex things are, thelonger it takes, and then, I
think, the longer it will thentake to negotiate a settlement
between you negotiate asettlement between you.
Tamsin Caine (05:27):
Yeah, absolutely.
I think one of the reasons thatwe hear quite often for not
discussing the pensions and justgoing, oh, we'll just keep our
own and leave it at that, notworry about it, is the cost of
having an expert look at thepensions and the time that it's
going to take, because they justwant everything done and dusted
.
So I think, as you say, if wecan simplify those things, keep
the costs down, simplify thenegotiations afterwards, I think
(05:49):
hopefully everybody will getsomething out of that and more
people, hopefully, will starttaking account of this massively
valuable asset that quite oftenis more valuable than their
family home.
So, yeah, I'm keen that moreand more people consider
pensions when they're whenthey're getting divorced.
(06:10):
So we're going to get stuckinto some of the some of the
nitty-gritty on some of theareas that you've uh, that
you've mentioned.
So one of the one of the thingsthat I'm often asked about is
what ages we should use when itcomes to the report.
So what retirement age shouldbe the age that we're asking for
(06:32):
asking the questions about?
So are there any general rulesof thumb around this?
Richard Nobbs (06:38):
Well, the choice of the retirement age is mainly
for the parties to decide, andit can make a big difference to
the pension sharing.
There are a few key points asfar as I'm concerned.
If the parties are not yetretired, we generally require
that the retirements are at thesame age, so both at 60 or both
(07:01):
at 65.
Otherwise you can end up withan unfair outcome.
For example, if you're going tosay one of them is going to
retire at 60 and the other oneis going to retire at 65, but
we're seeking equal incomes,then the 60-year-old is going to
be getting five years morepayments and so that wouldn't
(07:21):
necessarily be fair.
Where they're already retiredor they can both retire now,
then immediate retirement may beappropriate.
So that's a fairly common onefor people who are either
retired or very close to it.
For defined contributionpensions, I would say that
(07:41):
actually the retirement age isgenerally not that important as
far as pension sharingcalculations.
Clearly it's more important todecide what actual income
they'll be getting, because ifthey leave the pension invested
for longer they're likely to getmore.
But as far as the pensionsharing calculations are
concerned, defined contributionpensions and the retirement age
(08:04):
not generally that important Fordefined benefit pensions.
On the other hand, generallythe best point to take is the
age at which the benefits can betaken without reduction without
(08:26):
reduction, normally the normalretirement age of the pension
scheme, but not always.
Some pension schemes allowpeople to early retire without
reduction, without any penalty,and that's the age at which the
pension is most valuable.
So why wouldn't the individualbe taking it at that age?
So we'd normally use that,particularly if it's the
dominant or the main pension,the largest pension in the
(08:46):
pension sharing calculation.
So those are the general sortof rules of thumb.
There are a few other, shall wesay, quirky areas.
You've got public sectorpensions.
You've got the change of normalretirement age, typically the
old final salary pensions youcould take from 60, and the new
career averaged revaluedearnings you could take from
(09:10):
state pension age.
So you might have a couple ofretirement ages there in the
calculations.
And you've also got the armedforces and police, the uniformed
services, where there are somepeculiarities, if I can say it,
as far as the pension benefitsare concerned.
(09:30):
Some of those individuals canretire at very young ages,
sometimes below age 50, andstill take full benefits, and so
that requires some thoughtthere as to when they will
actually retire.
I think it's important toactually think about when the
individuals are actuallythinking of retiring.
(09:52):
What are their retirement plans?
So if that can be built in tothe analysis, then so much the
better.
It's probably worth flaggingthat just because we're
instructed to assume age 65, forexample, is the retirement age,
it doesn't mean that they haveto retire at that particular age
(10:12):
.
It's just an assumption usedfor achieving a fair split
between the pensions.
It doesn't actually commit themto retiring at that age.
Tamsin Caine (10:24):
Sure.
So if you write a report thatsays we're assuming a retirement
age of 65, you could still haveone retire at 60 and the other
retire at 67.
It doesn't matter.
This is all done and dusted.
Like with everything, Once thedivorce is done and dusted, it's
in the hands of the pensionholders.
Richard Nobbs (10:43):
Absolutely.
It's how to divvy up thepension sharing at this point in
time, and then they're free togo their own ways, their
separate ways, and they can sortout their actual retirement
plans at a later stage.
Tamsin Caine (10:56):
Absolutely.
Can I just take you back to oneof your answers?
One of your answers, so um, wetook.
You mentioned about the umpublic sector schemes, where
you've got the final salary bitand the and the career average
bit and they've got differentretirement ages.
In that circumstance, would youwould you suggest that you use
(11:19):
the 60, which tends to be thefinal salary bit, or the 67, 68
state pension age, or would itdepend on which is the bigger
pot, or how do you deal with?
How would you suggest dealingwith that?
Richard Nobbs (11:38):
It's an interesting one, particularly
where they are still in service.
Particularly where they arestill in service, I think if one
of the pensions is considerablylarger than the other, then I'd
like to take that particularage.
But if they are, you know,reasonably evenly split, then
(12:00):
actually getting both can makesense and I think that there can
be some real benefit here inactually asking for both ages.
As far as the calculation isconcerned, because typically for
the final salary, the oldlegacy pension, if they take it
at an age after age 60, you weresaying that that was the
(12:22):
retirement age there's often noenhancement for taking it later.
But often they can't actuallytake it at 60 unless they have
left employment.
So the key question is when arethey actually going to retire?
Because if they end up takingthe benefit the final salary
benefit at 67, a state pensionage, they're effectively losing
(12:46):
seven years' worth of income andthat needs to be incorporated
into the analysis.
Otherwise they could find thatthey're giving away too much and
it may well be that after thedivorce they're having to work
until state pension age becausethey can't now afford to retire
at age 60.
So in those circumstancespublic sector, where they are
(13:09):
still in service.
I think actually asking for bothretirement ages is a sensible
one.
You don't have to ask for everysingle age 60, 61, 62, because
that would just be ridiculous.
But if you ask for 60 and 67,and you'll get two sets of
results, it will give parties anidea of what income they're
(13:34):
going to get at both ages, andthey can take it from there as
far as negotiations is concerned.
And if they think that they'regoing to retire, shall I say
halfway through, then pick theaverage of the pension sharing.
You don't need to have everysingle scenario modelled.
Tamsin Caine (13:53):
Perfect, that's really interesting.
I'm glad I asked that becausethat's something that comes up a
lot and so it brings us nicelyon to.
Should we generally be askingfor calculations for a number of
different ages?
Richard Nobbs (14:08):
I think one or two ages generally suffices, and
certainly you know, giving theearlier example of 60 and 67,
you know that seems to besensible.
I generally would try and avoidsharing at, shall we say, 65
(14:28):
and 67, because a two-year agedifference, you might find that
the difference in the pensionsharing order is only a percent
or so, and so why spend hundredsof extra pounds in fees for
getting that extra analysis?
Certainly if there are otherparts that are being argued as
(14:54):
far as pension sharing isconcerned, you could find that
you end up with an inordinatelycomplex report if you've got
multiple retirement ages, threeat the most.
Anything more than that, Iwould suggest, is complete
overkill.
Tamsin Caine (15:10):
Absolutely agree, absolutely agree.
And the reports just end upbeing inches thick and
incredibly complicated and somany different percentages for
negotiations then to take placearound.
It's often asking me whether,when I'm guiding solicitors and
(15:31):
clients on drafting aninstruction, whether the PODEs
themselves would recommend apension age and I know this is
difficult because you're notstrictly advice givers more
information providers, but isthat something that PODEs are
willing to do?
Richard Nobbs (15:49):
Well, my understanding is that not all
PODEs will recommend an age touse.
But if we're not given an age,then Excalibur will normally
suggest an age that we think isreasonable on the circumstances
of the case.
And you're right that there canbe some difficulties there.
But our obligation, our duty asa single joint expert is to the
(16:13):
court and we're here to advisethe court.
So I consider that it shouldform part of our advice.
And so if they are saying youknow equality of income at
retirement, then if we've got,if the circumstances of the case
mean that there's a clearrecommendation, then back to
(16:36):
them and make some suggestionsthere.
There may be some furtherdialogue, but normally we'll be
able to make a recommendationeither at the outset or just
report on it, depending on howcomfortable we feel.
Tamsin Caine (16:57):
Excellent, Okay, Well, that's good because I
think that will put at ease someminds in solicitors' heads that
they are in a position wherethey can ask for that
information from someone whoknows what they're talking about
around pensions.
Okay, so we're going to move onto another aspect of the POAD
(17:20):
reports that you mentionedearlier on.
So we've talked about duringthe ages about equality of
income.
Can you explain what equalityof income and equality of
capital calculations establishand for you how they go around
(17:42):
about the offer?
Should I say how you would goabout doing that?
Richard Nobbs (17:47):
So what's the difference between equality of
income and equality of capital?
I'll give you an example and Ithink that might help illustrate
.
So if we take a 90-year-oldhusband, an extreme example a
90-year-old husband and £10,000a year worth of income Okay.
(18:10):
60-year-old wife, also with£10,000 a year of income Okay.
So, as far as pension sharingfor equal incomes is concerned,
well, there's no pension sharingthat's required.
For equal incomes is concerned,well, there's no pension sharing
that's required.
They already have equal incomesof £10,000 a year.
(18:31):
However, the 90-year-oldhusband may have a life
expectancy of, let's say, fiveyears, so the value of that, in
broad terms, might be £50,000.
The wife, being 60, on theother hand, maybe has a life
expectancy of 25 years, so thevalue of her, the capital value
(18:52):
of her pension, is £250,000.
So we've got equal incomes onthe one hand, but the wife's got
£250,000 of capital, of pensioncapital, the husband's £50,000
of pension capital.
So, essentially, the wife wouldneed to share £100,000 worth of
(19:14):
pension capital over to thehusband, so that they've then
got £150,000 each.
That £100,000 would beexpressed as a percentage, so
she would have to share 40% ofher pension.
Now, that's an extreme exampleand I can't say that equality of
(19:35):
capital would be particularlyappropriate in the circumstances
of that case.
But that is essentially what anequality of capital calculation
is compared to an equality ofincome.
You'll appreciate that that wasan extreme example, and most of
the cases that we're dealingwith are people in their 50s and
(19:56):
60s and so sometimes theyhaven't, or a lot of cases they
haven't yet retired.
So what we are doing on anequality of income calculation
is projecting their pensionincome when they retire at the
(20:16):
specified retirement age.
So if the letter of instructionis saying retirement at state
pension age, we are projectingtheir incomes up until state
pension age, both for thehusband and for the wife, and
then calculating the sharingthat's required on the party
with the larger pensions so thatafter that pension sharing they
(20:39):
both have the same income fromstate pension age.
So that's essentially what thedifference between pension
sharing and pension sharing forequality of income and equality
of capital is, and for most ofthe cases, actually, the
(21:00):
difference in pension sharing isoften very small.
So that's one of the reasonswhy we generally prefer one
instruction rather than both.
Tamsin Caine (21:11):
Are there any points at which it might make
sense to ask for both?
Because I see a lot ofinstructions where solicitors
feel that it's a good idea toask for both, and often it's
(21:31):
because, well, that's what we'vealways done.
So are the reasons we've sortof said you know, quite often
it's worth only asking for one.
It's more expensive, more timeconsuming, et cetera.
Longer report all the thingswe've said about lots of
different ages.
So are there any situationswhere it's a good idea to ask
for both?
Or whether it's good idea toask for just capital rather than
(21:53):
asking for income?
Richard Nobbs (21:56):
yeah, it depends on the different types of case
and it's talking in parts fourand six of what it calls needs
(22:17):
cases and sharing cases.
And let's take the easier onefirst.
So sharing cases are where theassets and the pensions of the
parties after any redistribution, after any pension sharing, are
more than enough to meet bothof their needs, both parties'
needs.
So they're typically big moneycases, so they're fairly few and
(22:39):
far between, whereas needscases are more the everyday type
of case where the assets andthe pensions after any
redistribution or pensionsharing just don't cover their
needs or only just meet them.
And I suppose a divorce casemay have elements of both.
But for needs cases typicallyit's found that equality of
(23:05):
income will lead to the morefair outcome, whereas for the
sharing cases, the big moneycases, then equality of capital
is generally more appropriate,but a divorce might have
elements of both.
(23:26):
I think where it is helpful tohave both questions is if the
parties are a number of yearsapart, it'll actually bring out
the differences in pensionsharing and you can see the
(23:47):
impact of that, because not onlyare you looking for what is the
pension sharing that's required, but if the parties are
actually rapidly approachingretirement, it's helpful from a
financial planning perspective.
It's helpful from a financialplanning perspective.
How much can they live on?
What do they actually need?
(24:10):
But if they're several yearsapart, it's handy, I think, to
have both equality of income andequality of capital.
If there are health issues, ifone of the parties or both of
the parties have health issues,you know, if one of the parties
or both of the parties havehealth issues and by that I'm
talking about, you know, areduced life expectancy I don't
(24:33):
mean, you know, is one of themsmoking or slightly overweight,
or something like that.
We're talking about materialchanges to life expectancies.
And the other area is probablywhere there are income, what are
known as income gap issues, andtypically that's where they're
(24:54):
in the uniform services.
So it's, for example, if youfind that the pension scheme
member can retire at, let's say,age 50, but the other party,
the spouse, can't actuallyretire until age 60, then you've
got 10 years' worth of pensiondifferential there.
(25:15):
How is that going to be takeninto account?
Now, that can easily be takeninto account in an equality of
capital calculation.
It may be a bit more difficultto deal with an equality of
income calculation, depending onhow the POAD actually goes
about those.
But yeah, certainly where Iwould ask for both are, you know
(25:36):
, large age differences, healthissues or income gap, public
sector uniformed services cases.
I think they can be helpfulthere.
Tamsin Caine (25:48):
Yes, absolutely.
Moving on to anothercontroversial area of POED
reports, we like a bit ofcontroversy, and this one seems
to cause more controversy thananything else, to be honest.
So should premarital pensionaccrual be excluded from PODE
(26:09):
calculations?
Richard Nobbs (26:11):
Right.
So it's worth clarifying that,excluding the premarital pension
accrual, what is that actuallydoing?
You're just asking for us toequalize the pensions that have
been built up over the maritalperiod.
So what's premarital isring-fenced for the individual
(26:36):
and they're just sharing thepensions that have been accrued
over the marriage.
And I suppose this then goesback to PAG and PAG's talking
about the needs cases and thesharing cases, and typically
it's found that in needs casesring fencing of assets is not
(26:58):
appropriate, whereas in sharingcases ring fencing may well be
appropriate.
But yeah, on the needs cases,which is the vast majority of
cases, then generally thereshouldn't be ring fencing and
the courts can have access toassets, as I understand it, no
(27:21):
matter when they're built up.
But because sometimes caseshave got elements of sharing and
elements of needs, you may wellfind that that is actually
incorporated into a number ofthe POAD reports.
It does surprise me the numberof cases we are still asked for
(27:43):
relationship periods, and so Iwould say probably around half
of our cases we are asked forrelationship calculations,
despite the fact that theyclearly appear to be needs style
.
Tamsin Caine (28:02):
Yeah, absolutely.
You call it relationship ratherthan marital and I know that
that will be for a reason.
So are you taking somethingthat's not just the marriage
period when we're talking aboutexcluding certain pension
accrual?
Richard Nobbs (28:22):
yeah, we've.
We get asked all sorts ofquestions as far as in our yeah
and it's sometimes it's sort ofquite frustrating, but we will
get, uh, asked for umcalculations based on um, just
the marital period, so from fromdate of marriage up to the date
(28:48):
of the report.
Sometimes we get asked to addthe period of premarital
cohabitation if there has beensome, so if they've lived
together for a number of yearsbefore marriage, to include that
.
Sometimes we get asked to takeout the post-separation accrual.
So we get asked all of thosescenarios.
(29:13):
Sometimes they don't agree onwhen they actually started
cohabiting, sometimes they don'tagree when they separated.
So we can get asked forrelationship calculations.
So we can get asked forrelationship calculations we can
(30:05):
be given quite like that.
So cohabitation up until thedate of the report is now a very
common instruction there.
Tamsin Caine (30:11):
Brilliant.
Thank you for that, because I'msure that that'll be another
aspect that gets regularlydebated.
So what's the situationregarding post-divorce accrual?
Are you asked about that?
So I have a client.
(30:32):
He's in his mid-50s, wife is 10years younger, so mid-40s.
I'm sure you can calculate thaton your own.
I don't think I needed to dothat for you.
But they earn relativelysimilar amounts, but she's
obviously going to have let'sassume, 20-ish years of being
able to accrual pension benefits, and he's going to have 10.
(30:54):
So what would the POE do interms of taking that into
consideration?
And do they need to take thatinto consideration, or does that
depend on what the solicitor orthe court wants them to do?
Richard Nobbs (31:09):
So.
When we carry out a pensionsharing report, the pensions are
normally based on the pensionsbuilt up to the date of the
report.
It's very rare, very, very rare, for us to allow for pension
accrual from the date of thereport, from now, shall we say,
up until the date that theparties retire because they
(31:34):
haven't built those pensions upyet, they haven't earned that
income.
Will they still remain in a jobor remain in that job up until
retirement?
So it generally isn't takeninto account and I suppose it
(31:54):
would contravene the sort ofprinciples of a clean break
because if you take it oneextreme, somebody who's sort of
40 years old, then if we'rehaving to allow for their
pension accrual up to retirement, so we could be allowing for
another 25 years or plus worthof accrual.
(32:15):
So generally not taken intoaccount, we can share it.
But it is rare and I think I'veonly seen this when the pension
holder in your case the husbandwhere the pension holder has
been prepared to share more thanusual because the parties are
(32:38):
very close to retirement withina year, shall we say, and the
divorce is amicable.
But those are the only casesthat I have seen where the
parties have been prepared toshare future pension accrual.
So the example that you gavewas where the husband is 10
(33:02):
years older than the wife.
Have they been married for along period?
Is this a long marriage or ashort marriage?
Tamsin Caine (33:10):
A long marriage.
Richard Nobbs (33:12):
Okay, okay, because one of the suggestions I
was going to come up with isperhaps ring-fencing some of the
pensions.
So certainly, if the husbandhad accrued some of the pension
prior to the marriage, then thatcould be worth considering.
Ring fencing, it may bepossible to allow for some
(33:36):
future accrual.
But, as I say, I'd be waryabout that, particularly if it's
going to court, and I certainlywouldn't recommend doing that
without taking legal advice onthe matter.
But what you've got here is, ifthe husband is getting very
close to retirement but the wifeis further away, this could be
(34:01):
a needs case.
Most of them are and bothparties have needs.
So yes, the wife does needperhaps extra pension, but on
the other hand, the husband willalso have their own needs and
those needs are, you know,retirement is coming up fast.
(34:23):
So it may be that actually anequality calculation may not be
appropriate and we have, on anumber of cases, been asked for
an unequal split because, youknow, just because we are doing
pension sharing, the courts arelooking for a fair and equitable
outcome.
(34:44):
They're not necessarily lookingfor an equal outcome and we've
been asked for splits, you know,70-30, 60-40, as well as 50-50.
And that way you can get atable setting out you know what
the pensions are going to be,what they're after after that
sharing, and the parties canthen look at that and say, well,
(35:06):
ok, will that meet my needs?
And OK, it's based on pensionsthat have been accrued.
And the wife can look at thatand say, ok, that's what I'm
going to get, based on myaccrued pension after sharing.
But she may well have to makefuture pension provision, and if
she is 20 years away fromretirement she's probably going
(35:29):
to have to make future pensionprovision, and that'll give her
an idea as to what provision sheneeds to make.
So yeah, unequal splits is oneway perhaps of looking at it.
Another way in which we havebeen asked is to actually set
out a set amount of income.
(35:50):
So what is the pension sharingthat's required for every
£10,000 worth of income for thewife, for example?
And so we calculate the pensionsharing required for that and
we'd also set out what thepension debit is, ie how much
the husband's pension is goingto be reduced, and you can look
(36:13):
at the table there and seewhether that is an appropriate
level of income, whether theythink that that meets his needs
(36:34):
If it doesn't, or the figureseffectively can be prorated up
or down in order to make surethat it does meet his needs or
they can use it for negotiatingboth of their needs.
I've not seen that, but I likethat.
Yeah, I've seen it quite a fewtimes.
We get a of those uh type ofcases um every every year, uh,
and I can see that it can bevery helpful in in that respect
yeah, absolutely well, that's it.
Tamsin Caine (36:56):
That's really interesting.
So the other area or the other.
The other thing that I wantedto talk about was, obviously,
we've mentioned Pag 2, which isthe revenge of Pag 1, and an
updated version of the originaldocuments.
What are the main areas thathave been updated in Pag?
Richard Nobbs (37:21):
I think the main legal area is this discussion
around cohabitation and it goinginto the marriage, particularly
talking about short marriagesand how you might go on the
apportionment side there.
So that's a key change.
As far as the valuation aspectswhich is the area that affects
(37:43):
me, is mainly concerned, aspects, which is the area that affects
me is mainly concerned, there'ssomething called McLeod in the
public sector, which has been abit of a nightmare, it must be
said, for most of the publicsector pension schemes, in that
when the government introducedthe new career averaged revalued
(38:04):
earnings that they did in a waythat was age discriminatory and
are now having to unpick that.
And so there is a section inPag2 around McLeod it's in
section I and the main thinghere is that from the 1st of
October 2023, the Public sectorpensions are changing the way in
(38:30):
which they are implementingpension sharing.
So if the last cash equivalenttransfer value, the last cash
equivalent value, was obtainedbefore October 1st of October
2023, they will calculatepension sharing.
(38:50):
They will implement pensionsharing in one way.
If, on the other hand, the cashequivalent is on or after 1st
of October 2023, then they willimplement pension sharing in a
very different way.
So it's really important thatthe parties and the pension and
the PODE the pensions expertunderstand how McLeod is being
(39:15):
implemented.
Otherwise you can end up withsomething that is very different
to what the parties and thecourts are expecting.
It can fundamentally underminetheir intentions.
So McLeod is really importantand I would encourage people to
(39:35):
read through the McLeod sectionof PAG2, and we've actually got
a quick summary of it on ourwebsite so we might even send a
link to that for listeners there.
Then the next area is offsetting, and so there's more discussion
(39:56):
there around the approachesthat can be used, including the
Galbraith table.
So one of the poets is calledJonathan Galbraith and he and
his colleagues have developedsome tables that can be used to
provide indicative andillustrative approaches for
offsettings, albeit with healthwarnings, but parties might find
(40:19):
those useful for getting someoffset values.
There's also some morediscussion of the tax
adjustments that might be usedfor offsetting.
So probably more details, butthere's more technical details
for more from the POAD userthere than instructing
(40:45):
solicitors or litigants inpersons.
The final area is the scrappingof the lifetime allowance.
So whilst Pag2 was all beingdeveloped, the lifetime
allowance was expected to stay,and then Jeremy Hunt announced
(41:05):
the scrapping of the lifetimeallowance and we had to go
through the entire report fromstart to finish and find out all
of the reference to thelifetime allowance and update
them.
So that is another area thathas changed in PAG 2.
Tamsin Caine (41:22):
Yeah, I think there are lifetime allowance
issues.
It's going to be a watch, thisspace bearing in mind.
We don't know what's going tohappen with the government over
the next couple of months, whoknows but certainly they've
introduced some new and excitingreplacement allowances?
Richard Nobbs (41:41):
well, yeah, and labor have said that they'll
reinstate the lifetime allowance, or words to that effect.
I can't remember the precise,precise wording, but there may
well be some changes in the nottoo distant future.
So, yeah, that could furthercomplicate matters.
Tamsin Caine (42:02):
Yeah, they did say that.
I think if they look at whathas actually changed, labour
might decide that it's probablynot worth reinstating it and
they might just stick with whatthey've got.
But we will see.
That will be a watch this spaceone.
Once we uh, once we get the newgovernment, we might have to
(42:23):
have you back at that point,richard it will be a major.
Richard Nobbs (42:26):
It will be a major headache if they
reintroduce it it.
Tamsin Caine (42:31):
It's just going to be a.
I don't even want to thinkabout it because that will make
my life very complicated.
What are the differences thatthe updates to PAG will make it?
I mean, this is difficult tosay because obviously it's kind
of court and case law dependentreally on how these differences
(42:51):
impact things.
But what do you think thedifferences are likely to be
really on how these differencesimpact things?
But what do y ou think thedifferences are likely to be?
Richard Nobbs (42:57):
Not massive at the end of the day.
You know, pag 2 was really anevolution of PAG 1, the first
PAG report.
It's not a revolution.
So there was some generalupdating but ultimately the
principles didn't change.
So what is likely to happen?
(43:18):
Yeah, there may be somedifferent relationship periods.
So now, yeah, more cohabitationand marriage rather than
marriage calculations, and Ithink that's largely it.
It's actually the things thatare behind it that are going to
have much more of an impact.
(43:40):
So, yes, mcleod itself, thefact that the public sector
pension schemes have decided howthey are going to implement all
of their rectification, thathas a major impact on PODA
reports and that is stillkeeping us busy there.
(44:00):
One of the things that partiesmight want to look at is making
sure that the pension holdergives undertakings so that they
don't go and get a cashequivalent transfer value if
that's going to undermine theintentions of the court or the
parties.
But you've still got to becareful there.
So, for example, I've just hadone of the cases that I'm
(44:24):
working on doing an updatereport, doing an update report,
and we have just been sentupdate a January 2024 CETV and
the member actually asked forthe CETV in March 2023.
It had taken them 10 months toactually provide the CETV.
(44:46):
So, you know, even if they'dgiven an undertaking back, you
know if they'd given anundertaking six months ago, it
would have been absolutely nouse.
So it's just a great deal ofcare needs to be taken.
(45:07):
Also, consider going andproviding a draft pension
sharing order to the pensionscheme administrators and saying
, nick, can you just confirmthat this is how the pension
sharing is going to work?
I mean, it's best practice, inany event, to send a draft
pension sharing order to thepension scheme administrators
(45:28):
just to make sure that thingsdon't go wrong.
But I would say it's reallyimportant in the context of
McLeod cases.
And yeah, the other area ofchange obviously is the lifetime
allowance, and so, yes, clearlythat saves a load of tax for
those with large pensions and itwill simplify the reports.
(45:49):
But that's the change thatmakes the difference, rather
than the updating of PAG.
Pag is just reflecting what'shappened in reality there.
Tamsin Caine (46:04):
Perfect, that's fantastic.
Thank you for that, richard.
Um, I know that it's it feelslike a complex and and not
altogether exciting subjects,but these things that are really
helpful for our listeners andreally helpful for some of our
list to listeners as well who,uh, who like to uh understand
(46:25):
what they're doing when it comesto instructing code reports and
using best practice.
Richard Nobbs (46:30):
So very grateful to you for joining me today
you're well, you're, you'rewelcome, and I think it actually
is it.
It goes to show, though, thatyou know, when looking at the
letter of instruction, taking umsome advice, particularly from
an independent financial advisorwho knows you know what is
actually happening and and getsthe reality of it, can end up
(46:52):
saving a lot of heartache allaround and can help streamline
the overall process.
So, yeah, I hope it does help.
Tamsin Caine (47:01):
Absolutely Thank you for that.
And yeah, I think you know,even if you've got to pay for an
hour of somebody's time to getthe right advice, it's probably
going to save you a lot more ofthe actuaries time and a lot
more fees from the actuary aswell.
So I absolutely agree with youon that.
Thank you for your time todayand thank you for listening, and
I hope you'll join us againsoon, hi, and I hope you enjoyed
(47:29):
that episode of the SmartDivorce Podcast.
If you would like to get intouch, please have a look in the
show notes for our details orgo onto the website,
wwwsmartdivorcecouk.
Also, if you are listening onApple Podcasts or on Spotify and
you wouldn't mind leaving us alovely five-star review, that
(47:50):
would be fantastic.
I know that lots of ourlisteners are finding this is
incredibly helpful in theirjourney through separation,
divorce and dissolving a civilpartnership.
Also, if you would like somefurther support, we do have a
facebook group now.
It's called separation, divorceand dissolution uk.
(48:11):
Please do go on to facebook,search up the group called
Separation, divorce andDissolution UK.
Please do go on to Facebook,search up the group and we'd be
delighted to have you join us.
The one thing I would say is doplease answer their membership
questions.
Okay, have a great day and takecare.
Hello and welcome to the Smart Divorce Podcast.
This is series nine and in thisseries we're going to explore
what makes up the working weekof various different
professionals who work in thedivorce world.
You'll start to understand whatthey do, both during the time
that you see them, how theyprepare for meetings, and what
(00:31):
work goes into the work of adivorce professional outside of
the time that you spend withthem.
I'm really looking forward tosome amazing clients in this
series.
We talked to a barrister,family solicitor, financial
planner, divorce coach andreally hoping that you're going
to enjoy it and get a lot fromit as well.
(00:57):
Hello and welcome to anotherepisode of the Smart Divorce
Podcast.
I'm really happy to be joinedagain by Richard Nobbs, who is
absolutely convinced that nobodywould want to listen to an
actuary chatting about poetrybooks, but actually it's been
one of our most popular episodeswhen he joined us previously,
(01:17):
so we've invited him back totalk to us about some of the
complexities around instructinga podriport and also to give us
a brief update on there-released or the new version
of TAG.
Welcome, richard, Richardlovely to see you again.
Richard Nobbs (01:35):
Yes, great to be back.
Tamsin Caine (01:36):
Fantastic.
You look like you're in theArctic or something from your
background.
Richard Nobbs (01:42):
Yes, I was in the Lingen Alan alps north tip of
norway um doing some ski touring, so climbing up the mountains,
uh, for four or five hours orsomething like that, and then
skiing down in half an hour.
So, uh it was, it was differentand, um, just the scenery was
spectacular it looks pretty.
Tamsin Caine (02:03):
It looks pretty amazing'll need to join us on
YouTube if you want to have alook at Richard's background so
you'll know what we're talkingabout.
So since we last PAG2, hasbeen released.
I know that sets out a draftletter of instruction to
instruct codes a draft letter ofinstruction to instruct codes
(02:28):
and we're going to talk aboutsome of the niche areas around
that instruction letter.
Can you tell us a bit moreabout how that instruction
letter can be used in practicethe version that's in Pag2?
Richard Nobbs (02:40):
Yeah, you've got in Appendix E in the PAC report
the letter of instruction.
It's also got a number of notesin there, so it gives you some
directions or some suggestionsas to what retirement ages that
you might want to use, whetherto ask for equality of income,
(03:00):
equality of capital offsettingapproaches, income equality of
capital offsetting approaches.
And just to set out how theletter of instruction should be
laid out, by either instructingsolicitors or it can easily be
adapted if people are acting aslitigant in person.
But if they can have reasonablystandard questions along those
(03:23):
lines, they'll find that theprocess is a lot easier.
If you start askingnon-standard questions, you will
find that the costs can easilyescalate quite dramatically and
you might find that the timetaken to actually respond to all
of those questions can be a lot, lot longer.
So making sure that there isstandardisation effectively
(03:49):
across the industry fromsolicitors and also from PODEs
should make everybody's lifeeasier.
Tamsin Caine (04:00):
Let's hope so.
Let's hope so because I thinkgetting the letter of
instruction right and asking theright questions at the right
time, the right information thatyou want back, will not only,
as you say, keep the cost andtime down, which is something
that everybody's keen to do whenit comes to the PODE report,
but also simplify the reportthat they get back and make the
(04:23):
information easier to understand.
Richard Nobbs (04:26):
Yeah, one of the things that concerns me is the
length of PODE reports.
I'd much rather provide areport which deals with a
smaller number of issues smallernumber of retirement ages,
smaller number of calculations,fewer tables.
That means that there's less tonegotiate as far as the
(04:46):
individuals are concerned.
It means that it's easier forus to provide the report.
There's less informationgenerally that is requested from
the pension schemes and itaccelerates the entire process.
It normally takes a few monthsto actually produce a POED
report, from instruction to thereport being issued, and the
(05:12):
more complex things are, thelonger it takes, and then, I
think, the longer it will thentake to negotiate a settlement
between you negotiate asettlement between you.
Tamsin Caine (05:27):
Yeah, absolutely.
I think one of the reasons thatwe hear quite often for not
discussing the pensions and justgoing, oh, we'll just keep our
own and leave it at that, notworry about it, is the cost of
having an expert look at thepensions and the time that it's
going to take, because they justwant everything done and dusted
.
So I think, as you say, if wecan simplify those things, keep
the costs down, simplify thenegotiations afterwards, I think
(05:49):
hopefully everybody will getsomething out of that and more
people, hopefully, will starttaking account of this massively
valuable asset that quite oftenis more valuable than their
family home.
So, yeah, I'm keen that moreand more people consider
pensions when they're whenthey're getting divorced.
(06:10):
So we're going to get stuckinto some of the some of the
nitty-gritty on some of theareas that you've uh, that
you've mentioned.
So one of the one of the thingsthat I'm often asked about is
what ages we should use when itcomes to the report.
So what retirement age shouldbe the age that we're asking for
(06:32):
asking the questions about?
So are there any general rulesof thumb around this?
Richard Nobbs (06:38):
Well, the choice of the retirement age is mainly
for the parties to decide, andit can make a big difference to
the pension sharing.
There are a few key points asfar as I'm concerned.
If the parties are not yetretired, we generally require
that the retirements are at thesame age, so both at 60 or both
(07:01):
at 65.
Otherwise you can end up withan unfair outcome.
For example, if you're going tosay one of them is going to
retire at 60 and the other oneis going to retire at 65, but
we're seeking equal incomes,then the 60-year-old is going to
be getting five years morepayments and so that wouldn't
(07:21):
necessarily be fair.
Where they're already retiredor they can both retire now,
then immediate retirement may beappropriate.
So that's a fairly common onefor people who are either
retired or very close to it.
For defined contributionpensions, I would say that
(07:41):
actually the retirement age isgenerally not that important as
far as pension sharingcalculations.
Clearly it's more important todecide what actual income
they'll be getting, because ifthey leave the pension invested
for longer they're likely to getmore.
But as far as the pensionsharing calculations are
concerned, defined contributionpensions and the retirement age
(08:04):
not generally that important Fordefined benefit pensions.
On the other hand, generallythe best point to take is the
age at which the benefits can betaken without reduction without
(08:26):
reduction, normally the normalretirement age of the pension
scheme, but not always.
Some pension schemes allowpeople to early retire without
reduction, without any penalty,and that's the age at which the
pension is most valuable.
So why wouldn't the individualbe taking it at that age?
So we'd normally use that,particularly if it's the
dominant or the main pension,the largest pension in the
(08:46):
pension sharing calculation.
So those are the general sortof rules of thumb.
There are a few other, shall wesay, quirky areas.
You've got public sectorpensions.
You've got the change of normalretirement age, typically the
old final salary pensions youcould take from 60, and the new
career averaged revaluedearnings you could take from
(09:10):
state pension age.
So you might have a couple ofretirement ages there in the
calculations.
And you've also got the armedforces and police, the uniformed
services, where there are somepeculiarities, if I can say it,
as far as the pension benefitsare concerned.
(09:30):
Some of those individuals canretire at very young ages,
sometimes below age 50, andstill take full benefits, and so
that requires some thoughtthere as to when they will
actually retire.
I think it's important toactually think about when the
individuals are actuallythinking of retiring.
(09:52):
What are their retirement plans?
So if that can be built in tothe analysis, then so much the
better.
It's probably worth flaggingthat just because we're
instructed to assume age 65, forexample, is the retirement age,
it doesn't mean that they haveto retire at that particular age
(10:12):
.
It's just an assumption usedfor achieving a fair split
between the pensions.
It doesn't actually commit themto retiring at that age.
Tamsin Caine (10:24):
Sure.
So if you write a report thatsays we're assuming a retirement
age of 65, you could still haveone retire at 60 and the other
retire at 67.
It doesn't matter.
This is all done and dusted.
Like with everything, Once thedivorce is done and dusted, it's
in the hands of the pensionholders.
Richard Nobbs (10:43):
Absolutely.
It's how to divvy up thepension sharing at this point in
time, and then they're free togo their own ways, their
separate ways, and they can sortout their actual retirement
plans at a later stage.
Tamsin Caine (10:56):
Absolutely.
Can I just take you back to oneof your answers?
One of your answers, so um, wetook.
You mentioned about the umpublic sector schemes, where
you've got the final salary bitand the and the career average
bit and they've got differentretirement ages.
In that circumstance, would youwould you suggest that you use
(11:19):
the 60, which tends to be thefinal salary bit, or the 67, 68
state pension age, or would itdepend on which is the bigger
pot, or how do you deal with?
How would you suggest dealingwith that?
Richard Nobbs (11:38):
It's an interesting one, particularly
where they are still in service.
Particularly where they arestill in service, I think if one
of the pensions is considerablylarger than the other, then I'd
like to take that particularage.
But if they are, you know,reasonably evenly split, then
(12:00):
actually getting both can makesense and I think that there can
be some real benefit here inactually asking for both ages.
As far as the calculation isconcerned, because typically for
the final salary, the oldlegacy pension, if they take it
at an age after age 60, you weresaying that that was the
(12:22):
retirement age there's often noenhancement for taking it later.
But often they can't actuallytake it at 60 unless they have
left employment.
So the key question is when arethey actually going to retire?
Because if they end up takingthe benefit the final salary
benefit at 67, a state pensionage, they're effectively losing
(12:46):
seven years' worth of income andthat needs to be incorporated
into the analysis.
Otherwise they could find thatthey're giving away too much and
it may well be that after thedivorce they're having to work
until state pension age becausethey can't now afford to retire
at age 60.
So in those circumstancespublic sector, where they are
(13:09):
still in service.
I think actually asking for bothretirement ages is a sensible
one.
You don't have to ask for everysingle age 60, 61, 62, because
that would just be ridiculous.
But if you ask for 60 and 67,and you'll get two sets of
results, it will give parties anidea of what income they're
(13:34):
going to get at both ages, andthey can take it from there as
far as negotiations is concerned.
And if they think that they'regoing to retire, shall I say
halfway through, then pick theaverage of the pension sharing.
You don't need to have everysingle scenario modelled.
Tamsin Caine (13:53):
Perfect, that's really interesting.
I'm glad I asked that becausethat's something that comes up a
lot and so it brings us nicelyon to.
Should we generally be askingfor calculations for a number of
different ages?
Richard Nobbs (14:08):
I think one or two ages generally suffices, and
certainly you know, giving theearlier example of 60 and 67,
you know that seems to besensible.
I generally would try and avoidsharing at, shall we say, 65
(14:28):
and 67, because a two-year agedifference, you might find that
the difference in the pensionsharing order is only a percent
or so, and so why spend hundredsof extra pounds in fees for
getting that extra analysis?
Certainly if there are otherparts that are being argued as
(14:54):
far as pension sharing isconcerned, you could find that
you end up with an inordinatelycomplex report if you've got
multiple retirement ages, threeat the most.
Anything more than that, Iwould suggest, is complete
overkill.
Tamsin Caine (15:10):
Absolutely agree, absolutely agree.
And the reports just end upbeing inches thick and
incredibly complicated and somany different percentages for
negotiations then to take placearound.
It's often asking me whether,when I'm guiding solicitors and
(15:31):
clients on drafting aninstruction, whether the PODEs
themselves would recommend apension age and I know this is
difficult because you're notstrictly advice givers more
information providers, but isthat something that PODEs are
willing to do?
Richard Nobbs (15:49):
Well, my understanding is that not all
PODEs will recommend an age touse.
But if we're not given an age,then Excalibur will normally
suggest an age that we think isreasonable on the circumstances
of the case.
And you're right that there canbe some difficulties there.
But our obligation, our duty asa single joint expert is to the
(16:13):
court and we're here to advisethe court.
So I consider that it shouldform part of our advice.
And so if they are saying youknow equality of income at
retirement, then if we've got,if the circumstances of the case
mean that there's a clearrecommendation, then back to
(16:36):
them and make some suggestionsthere.
There may be some furtherdialogue, but normally we'll be
able to make a recommendationeither at the outset or just
report on it, depending on howcomfortable we feel.
Tamsin Caine (16:57):
Excellent, Okay, Well, that's good because I
think that will put at ease someminds in solicitors' heads that
they are in a position wherethey can ask for that
information from someone whoknows what they're talking about
around pensions.
Okay, so we're going to move onto another aspect of the POAD
(17:20):
reports that you mentionedearlier on.
So we've talked about duringthe ages about equality of
income.
Can you explain what equalityof income and equality of
capital calculations establishand for you how they go around
(17:42):
about the offer?
Should I say how you would goabout doing that?
Richard Nobbs (17:47):
So what's the difference between equality of
income and equality of capital?
I'll give you an example and Ithink that might help illustrate
.
So if we take a 90-year-oldhusband, an extreme example a
90-year-old husband and £10,000a year worth of income Okay.
(18:10):
60-year-old wife, also with£10,000 a year of income Okay.
So, as far as pension sharingfor equal incomes is concerned,
well, there's no pension sharingthat's required.
For equal incomes is concerned,well, there's no pension sharing
that's required.
They already have equal incomesof £10,000 a year.
(18:31):
However, the 90-year-oldhusband may have a life
expectancy of, let's say, fiveyears, so the value of that, in
broad terms, might be £50,000.
The wife, being 60, on theother hand, maybe has a life
expectancy of 25 years, so thevalue of her, the capital value
(18:52):
of her pension, is £250,000.
So we've got equal incomes onthe one hand, but the wife's got
£250,000 of capital, of pensioncapital, the husband's £50,000
of pension capital.
So, essentially, the wife wouldneed to share £100,000 worth of
(19:14):
pension capital over to thehusband, so that they've then
got £150,000 each.
That £100,000 would beexpressed as a percentage, so
she would have to share 40% ofher pension.
Now, that's an extreme exampleand I can't say that equality of
(19:35):
capital would be particularlyappropriate in the circumstances
of that case.
But that is essentially what anequality of capital calculation
is compared to an equality ofincome.
You'll appreciate that that wasan extreme example, and most of
the cases that we're dealingwith are people in their 50s and
(19:56):
60s and so sometimes theyhaven't, or a lot of cases they
haven't yet retired.
So what we are doing on anequality of income calculation
is projecting their pensionincome when they retire at the
(20:16):
specified retirement age.
So if the letter of instructionis saying retirement at state
pension age, we are projectingtheir incomes up until state
pension age, both for thehusband and for the wife, and
then calculating the sharingthat's required on the party
with the larger pensions so thatafter that pension sharing they
(20:39):
both have the same income fromstate pension age.
So that's essentially what thedifference between pension
sharing and pension sharing forequality of income and equality
of capital is, and for most ofthe cases, actually, the
(21:00):
difference in pension sharing isoften very small.
So that's one of the reasonswhy we generally prefer one
instruction rather than both.
Tamsin Caine (21:11):
Are there any points at which it might make
sense to ask for both?
Because I see a lot ofinstructions where solicitors
feel that it's a good idea toask for both, and often it's
(21:31):
because, well, that's what we'vealways done.
So are the reasons we've sortof said you know, quite often
it's worth only asking for one.
It's more expensive, more timeconsuming, et cetera.
Longer report all the thingswe've said about lots of
different ages.
So are there any situationswhere it's a good idea to ask
for both?
Or whether it's good idea toask for just capital rather than
(21:53):
asking for income?
Richard Nobbs (21:56):
yeah, it depends on the different types of case
and it's talking in parts fourand six of what it calls needs
(22:17):
cases and sharing cases.
And let's take the easier onefirst.
So sharing cases are where theassets and the pensions of the
parties after any redistribution, after any pension sharing, are
more than enough to meet bothof their needs, both parties'
needs.
So they're typically big moneycases, so they're fairly few and
(22:39):
far between, whereas needscases are more the everyday type
of case where the assets andthe pensions after any
redistribution or pensionsharing just don't cover their
needs or only just meet them.
And I suppose a divorce casemay have elements of both.
But for needs cases typicallyit's found that equality of
(23:05):
income will lead to the morefair outcome, whereas for the
sharing cases, the big moneycases, then equality of capital
is generally more appropriate,but a divorce might have
elements of both.
(23:26):
I think where it is helpful tohave both questions is if the
parties are a number of yearsapart, it'll actually bring out
the differences in pensionsharing and you can see the
(23:47):
impact of that, because not onlyare you looking for what is the
pension sharing that's required, but if the parties are
actually rapidly approachingretirement, it's helpful from a
financial planning perspective.
It's helpful from a financialplanning perspective.
How much can they live on?
What do they actually need?
(24:10):
But if they're several yearsapart, it's handy, I think, to
have both equality of income andequality of capital.
If there are health issues, ifone of the parties or both of
the parties have health issues,you know, if one of the parties
or both of the parties havehealth issues and by that I'm
talking about, you know, areduced life expectancy I don't
(24:33):
mean, you know, is one of themsmoking or slightly overweight,
or something like that.
We're talking about materialchanges to life expectancies.
And the other area is probablywhere there are income, what are
known as income gap issues, andtypically that's where they're
(24:54):
in the uniform services.
So it's, for example, if youfind that the pension scheme
member can retire at, let's say,age 50, but the other party,
the spouse, can't actuallyretire until age 60, then you've
got 10 years' worth of pensiondifferential there.
(25:15):
How is that going to be takeninto account?
Now, that can easily be takeninto account in an equality of
capital calculation.
It may be a bit more difficultto deal with an equality of
income calculation, depending onhow the POAD actually goes
about those.
But yeah, certainly where Iwould ask for both are, you know
(25:36):
, large age differences, healthissues or income gap, public
sector uniformed services cases.
I think they can be helpfulthere.
Tamsin Caine (25:48):
Yes, absolutely.
Moving on to anothercontroversial area of POED
reports, we like a bit ofcontroversy, and this one seems
to cause more controversy thananything else, to be honest.
So should premarital pensionaccrual be excluded from PODE
(26:09):
calculations?
Richard Nobbs (26:11):
Right.
So it's worth clarifying that,excluding the premarital pension
accrual, what is that actuallydoing?
You're just asking for us toequalize the pensions that have
been built up over the maritalperiod.
So what's premarital isring-fenced for the individual
(26:36):
and they're just sharing thepensions that have been accrued
over the marriage.
And I suppose this then goesback to PAG and PAG's talking
about the needs cases and thesharing cases, and typically
it's found that in needs casesring fencing of assets is not
(26:58):
appropriate, whereas in sharingcases ring fencing may well be
appropriate.
But yeah, on the needs cases,which is the vast majority of
cases, then generally thereshouldn't be ring fencing and
the courts can have access toassets, as I understand it, no
(27:21):
matter when they're built up.
But because sometimes caseshave got elements of sharing and
elements of needs, you may wellfind that that is actually
incorporated into a number ofthe POAD reports.
It does surprise me the numberof cases we are still asked for
(27:43):
relationship periods, and so Iwould say probably around half
of our cases we are asked forrelationship calculations,
despite the fact that theyclearly appear to be needs style
.
Tamsin Caine (28:02):
Yeah, absolutely.
You call it relationship ratherthan marital and I know that
that will be for a reason.
So are you taking somethingthat's not just the marriage
period when we're talking aboutexcluding certain pension
accrual?
Richard Nobbs (28:22):
yeah, we've.
We get asked all sorts ofquestions as far as in our yeah
and it's sometimes it's sort ofquite frustrating, but we will
get, uh, asked for umcalculations based on um, just
the marital period, so from fromdate of marriage up to the date
(28:48):
of the report.
Sometimes we get asked to addthe period of premarital
cohabitation if there has beensome, so if they've lived
together for a number of yearsbefore marriage, to include that
.
Sometimes we get asked to takeout the post-separation accrual.
So we get asked all of thosescenarios.
(29:13):
Sometimes they don't agree onwhen they actually started
cohabiting, sometimes they don'tagree when they separated.
So we can get asked forrelationship calculations.
So we can get asked forrelationship calculations we can
(30:05):
be given quite like that.
So cohabitation up until thedate of the report is now a very
common instruction there.
Tamsin Caine (30:11):
Brilliant.
Thank you for that, because I'msure that that'll be another
aspect that gets regularlydebated.
So what's the situationregarding post-divorce accrual?
Are you asked about that?
So I have a client.
(30:32):
He's in his mid-50s, wife is 10years younger, so mid-40s.
I'm sure you can calculate thaton your own.
I don't think I needed to dothat for you.
But they earn relativelysimilar amounts, but she's
obviously going to have let'sassume, 20-ish years of being
able to accrual pension benefits, and he's going to have 10.
(30:54):
So what would the POE do interms of taking that into
consideration?
And do they need to take thatinto consideration, or does that
depend on what the solicitor orthe court wants them to do?
Richard Nobbs (31:09):
So.
When we carry out a pensionsharing report, the pensions are
normally based on the pensionsbuilt up to the date of the
report.
It's very rare, very, very rare, for us to allow for pension
accrual from the date of thereport, from now, shall we say,
up until the date that theparties retire because they
(31:34):
haven't built those pensions upyet, they haven't earned that
income.
Will they still remain in a jobor remain in that job up until
retirement?
So it generally isn't takeninto account and I suppose it
(31:54):
would contravene the sort ofprinciples of a clean break
because if you take it oneextreme, somebody who's sort of
40 years old, then if we'rehaving to allow for their
pension accrual up to retirement, so we could be allowing for
another 25 years or plus worthof accrual.
(32:15):
So generally not taken intoaccount, we can share it.
But it is rare and I think I'veonly seen this when the pension
holder in your case the husbandwhere the pension holder has
been prepared to share more thanusual because the parties are
(32:38):
very close to retirement withina year, shall we say, and the
divorce is amicable.
But those are the only casesthat I have seen where the
parties have been prepared toshare future pension accrual.
So the example that you gavewas where the husband is 10
(33:02):
years older than the wife.
Have they been married for along period?
Is this a long marriage or ashort marriage?
Tamsin Caine (33:10):
A long marriage.
Richard Nobbs (33:12):
Okay, okay, because one of the suggestions I
was going to come up with isperhaps ring-fencing some of the
pensions.
So certainly, if the husbandhad accrued some of the pension
prior to the marriage, then thatcould be worth considering.
Ring fencing, it may bepossible to allow for some
(33:36):
future accrual.
But, as I say, I'd be waryabout that, particularly if it's
going to court, and I certainlywouldn't recommend doing that
without taking legal advice onthe matter.
But what you've got here is, ifthe husband is getting very
close to retirement but the wifeis further away, this could be
(34:01):
a needs case.
Most of them are and bothparties have needs.
So yes, the wife does needperhaps extra pension, but on
the other hand, the husband willalso have their own needs and
those needs are, you know,retirement is coming up fast.
(34:23):
So it may be that actually anequality calculation may not be
appropriate and we have, on anumber of cases, been asked for
an unequal split because, youknow, just because we are doing
pension sharing, the courts arelooking for a fair and equitable
outcome.
(34:44):
They're not necessarily lookingfor an equal outcome and we've
been asked for splits, you know,70-30, 60-40, as well as 50-50.
And that way you can get atable setting out you know what
the pensions are going to be,what they're after after that
sharing, and the parties canthen look at that and say, well,
(35:06):
ok, will that meet my needs?
And OK, it's based on pensionsthat have been accrued.
And the wife can look at thatand say, ok, that's what I'm
going to get, based on myaccrued pension after sharing.
But she may well have to makefuture pension provision, and if
she is 20 years away fromretirement she's probably going
(35:29):
to have to make future pensionprovision, and that'll give her
an idea as to what provision sheneeds to make.
So yeah, unequal splits is oneway perhaps of looking at it.
Another way in which we havebeen asked is to actually set
out a set amount of income.
(35:50):
So what is the pension sharingthat's required for every
£10,000 worth of income for thewife, for example?
And so we calculate the pensionsharing required for that and
we'd also set out what thepension debit is, ie how much
the husband's pension is goingto be reduced, and you can look
(36:13):
at the table there and seewhether that is an appropriate
level of income, whether theythink that that meets his needs
(36:34):
If it doesn't, or the figureseffectively can be prorated up
or down in order to make surethat it does meet his needs or
they can use it for negotiatingboth of their needs.
I've not seen that, but I likethat.
Yeah, I've seen it quite a fewtimes.
We get a of those uh type ofcases um every every year, uh,
and I can see that it can bevery helpful in in that respect
yeah, absolutely well, that's it.
Tamsin Caine (36:56):
That's really interesting.
So the other area or the other.
The other thing that I wantedto talk about was, obviously,
we've mentioned Pag 2, which isthe revenge of Pag 1, and an
updated version of the originaldocuments.
What are the main areas thathave been updated in Pag?
Richard Nobbs (37:21):
I think the main legal area is this discussion
around cohabitation and it goinginto the marriage, particularly
talking about short marriagesand how you might go on the
apportionment side there.
So that's a key change.
As far as the valuation aspectswhich is the area that affects
(37:43):
me, is mainly concerned, aspects, which is the area that affects
me is mainly concerned, there'ssomething called McLeod in the
public sector, which has been abit of a nightmare, it must be
said, for most of the publicsector pension schemes, in that
when the government introducedthe new career averaged revalued
(38:04):
earnings that they did in a waythat was age discriminatory and
are now having to unpick that.
And so there is a section inPag2 around McLeod it's in
section I and the main thinghere is that from the 1st of
October 2023, the Public sectorpensions are changing the way in
(38:30):
which they are implementingpension sharing.
So if the last cash equivalenttransfer value, the last cash
equivalent value, was obtainedbefore October 1st of October
2023, they will calculatepension sharing.
(38:50):
They will implement pensionsharing in one way.
If, on the other hand, the cashequivalent is on or after 1st
of October 2023, then they willimplement pension sharing in a
very different way.
So it's really important thatthe parties and the pension and
the PODE the pensions expertunderstand how McLeod is being
(39:15):
implemented.
Otherwise you can end up withsomething that is very different
to what the parties and thecourts are expecting.
It can fundamentally underminetheir intentions.
So McLeod is really importantand I would encourage people to
(39:35):
read through the McLeod sectionof PAG2, and we've actually got
a quick summary of it on ourwebsite so we might even send a
link to that for listeners there.
Then the next area is offsetting, and so there's more discussion
(39:56):
there around the approachesthat can be used, including the
Galbraith table.
So one of the poets is calledJonathan Galbraith and he and
his colleagues have developedsome tables that can be used to
provide indicative andillustrative approaches for
offsettings, albeit with healthwarnings, but parties might find
(40:19):
those useful for getting someoffset values.
There's also some morediscussion of the tax
adjustments that might be usedfor offsetting.
So probably more details, butthere's more technical details
for more from the POAD userthere than instructing
(40:45):
solicitors or litigants inpersons.
The final area is the scrappingof the lifetime allowance.
So whilst Pag2 was all beingdeveloped, the lifetime
allowance was expected to stay,and then Jeremy Hunt announced
(41:05):
the scrapping of the lifetimeallowance and we had to go
through the entire report fromstart to finish and find out all
of the reference to thelifetime allowance and update
them.
So that is another area thathas changed in PAG 2.
Tamsin Caine (41:22):
Yeah, I think there are lifetime allowance
issues.
It's going to be a watch, thisspace bearing in mind.
We don't know what's going tohappen with the government over
the next couple of months, whoknows but certainly they've
introduced some new and excitingreplacement allowances?
Richard Nobbs (41:41):
well, yeah, and labor have said that they'll
reinstate the lifetime allowance, or words to that effect.
I can't remember the precise,precise wording, but there may
well be some changes in the nottoo distant future.
So, yeah, that could furthercomplicate matters.
Tamsin Caine (42:02):
Yeah, they did say that.
I think if they look at whathas actually changed, labour
might decide that it's probablynot worth reinstating it and
they might just stick with whatthey've got.
But we will see.
That will be a watch this spaceone.
Once we uh, once we get the newgovernment, we might have to
(42:23):
have you back at that point,richard it will be a major.
Richard Nobbs (42:26):
It will be a major headache if they
reintroduce it it.
Tamsin Caine (42:31):
It's just going to be a.
I don't even want to thinkabout it because that will make
my life very complicated.
What are the differences thatthe updates to PAG will make it?
I mean, this is difficult tosay because obviously it's kind
of court and case law dependentreally on how these differences
(42:51):
impact things.
But what do you think thedifferences are likely to be
really on how these differencesimpact things?
But what do y ou think thedifferences are likely to be?
Richard Nobbs (42:57):
Not massive at the end of the day.
You know, pag 2 was really anevolution of PAG 1, the first
PAG report.
It's not a revolution.
So there was some generalupdating but ultimately the
principles didn't change.
So what is likely to happen?
(43:18):
Yeah, there may be somedifferent relationship periods.
So now, yeah, more cohabitationand marriage rather than
marriage calculations, and Ithink that's largely it.
It's actually the things thatare behind it that are going to
have much more of an impact.
(43:40):
So, yes, mcleod itself, thefact that the public sector
pension schemes have decided howthey are going to implement all
of their rectification, thathas a major impact on PODA
reports and that is stillkeeping us busy there.
(44:00):
One of the things that partiesmight want to look at is making
sure that the pension holdergives undertakings so that they
don't go and get a cashequivalent transfer value if
that's going to undermine theintentions of the court or the
parties.
But you've still got to becareful there.
So, for example, I've just hadone of the cases that I'm
(44:24):
working on doing an updatereport, doing an update report,
and we have just been sentupdate a January 2024 CETV and
the member actually asked forthe CETV in March 2023.
It had taken them 10 months toactually provide the CETV.
(44:46):
So, you know, even if they'dgiven an undertaking back, you
know if they'd given anundertaking six months ago, it
would have been absolutely nouse.
So it's just a great deal ofcare needs to be taken.
(45:07):
Also, consider going andproviding a draft pension
sharing order to the pensionscheme administrators and saying
, nick, can you just confirmthat this is how the pension
sharing is going to work?
I mean, it's best practice, inany event, to send a draft
pension sharing order to thepension scheme administrators
(45:28):
just to make sure that thingsdon't go wrong.
But I would say it's reallyimportant in the context of
McLeod cases.
And yeah, the other area ofchange obviously is the lifetime
allowance, and so, yes, clearlythat saves a load of tax for
those with large pensions and itwill simplify the reports.
(45:49):
But that's the change thatmakes the difference, rather
than the updating of PAG.
Pag is just reflecting what'shappened in reality there.
Tamsin Caine (46:04):
Perfect, that's fantastic.
Thank you for that, richard.
Um, I know that it's it feelslike a complex and and not
altogether exciting subjects,but these things that are really
helpful for our listeners andreally helpful for some of our
list to listeners as well who,uh, who like to uh understand
(46:25):
what they're doing when it comesto instructing code reports and
using best practice.
Richard Nobbs (46:30):
So very grateful to you for joining me today
you're well, you're, you'rewelcome, and I think it actually
is it.
It goes to show, though, thatyou know, when looking at the
letter of instruction, taking umsome advice, particularly from
an independent financial advisorwho knows you know what is
actually happening and and getsthe reality of it, can end up
(46:52):
saving a lot of heartache allaround and can help streamline
the overall process.
So, yeah, I hope it does help.
Tamsin Caine (47:01):
Absolutely Thank you for that.
And yeah, I think you know,even if you've got to pay for an
hour of somebody's time to getthe right advice, it's probably
going to save you a lot more ofthe actuaries time and a lot
more fees from the actuary aswell.
So I absolutely agree with youon that.
Thank you for your time todayand thank you for listening, and
I hope you'll join us againsoon, hi, and I hope you enjoyed
(47:29):
that episode of the SmartDivorce Podcast.
If you would like to get intouch, please have a look in the
show notes for our details orgo onto the website,
wwwsmartdivorcecouk.
Also, if you are listening onApple Podcasts or on Spotify and
you wouldn't mind leaving us alovely five-star review, that
(47:50):
would be fantastic.
I know that lots of ourlisteners are finding this is
incredibly helpful in theirjourney through separation,
divorce and dissolving a civilpartnership.
Also, if you would like somefurther support, we do have a
facebook group now.
It's called separation, divorceand dissolution uk.
(48:11):
Please do go on to facebook,search up the group called
Separation, divorce andDissolution UK.
Please do go on to Facebook,search up the group and we'd be
delighted to have you join us.
The one thing I would say is doplease answer their membership
questions.
Okay, have a great day and takecare.
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