Teachers and Armed Forces Schemes
When couples divorce in the UK, one of the most significant financial assets that often requires careful consideration is the pension. However, for many family lawyers and divorcing individuals, the journey to fairly dividing pension benefits is fraught with complexity, expense, and delays. This is particularly true for members of the Teachers’ Pension Scheme (TPS) and the Armed Forces Pension Scheme (AFPS), especially in light of the McCloud judgment and its repercussions.
The McCloud Judgment: Adding Complexity to CETV Calculations
The McCloud judgment, a landmark age discrimination ruling, has introduced significant challenges for public sector pension schemes, including the TPS and AFPS. The ruling requires schemes to rectify unlawful age-based discrimination caused by pension reforms in 2015. While these changes aim to ensure fairness, they have created a period of transition and uncertainty, particularly for individuals undergoing divorce.
A key starting point in assessing pensions during divorce is obtaining a Cash Equivalent Transfer Value (CETV). However, for public sector schemes like the TPS and AFPS, the McCloud judgment has further complicated the process. Many schemes are in the midst of recalculating benefits to account for the judgment, meaning CETVs issued during this period may be inaccurate or subject to change. This adds a layer of uncertainty and can result in very long delays as schemes struggle to provide updated valuations.
Moreover, the calculation methods used in defined benefit schemes often undervalue the pension when compared to its actual worth to the member. To address this as lawyers we advise instructing a pension actuary or expert to conduct a detailed valuation that considers factors like future income streams and the cost of purchasing equivalent benefits on the open market. However, these reports come at a cost of usually £2,000-4,000 plus VAT depending on the pensions and complexities, which can be prohibitive for many divorcing couples. Delays in obtaining expert valuations add further stress and expense to already drawn out proceedings.
Implementation Delays in Pension Sharing Orders
Even once a Pension Sharing Order (PSO) has been agreed and approved by the court, implementing it within public sector schemes like TPS and AFPS presents its own set of hurdles.
Firstly, these schemes are notoriously slow in processing PSOs. For example, it can take several months or even years for a PSO to be implemented, during which time the receiving party’s financial security remains uncertain. The administrative burden of addressing McCloud related adjustments exacerbates these delays, as schemes prioritise compliance with the judgment over implementing PSOs.
Secondly, there are administrative complexities unique to these schemes. Unlike many private sector schemes, TPS and AFPS operate under strict rules that may limit the ways in which pension benefits can be divided or accessed. For instance, the Armed Forces Pension Scheme includes different schemes with varying rules, such as AFPS75, AFPS05, and AFPS15, each with distinct approaches to division upon divorce. Understanding these nuances requires specialist legal and actuarial advice, adding yet another layer of cost and complexity.
The Need for Reform
These challenges highlight the need for reforms to make pension division in divorce more transparent, efficient, and affordable. Public sector pension schemes should aim to provide clearer guidance and more realistic CETVs to facilitate fair settlements. Streamlining the implementation process for PSOs would go a long way toward reducing delays and ensuring that divorcing couples can move forward with financial stability.
In the meantime, it is crucial for divorcing parties to seek expert advice early in the process.
At Gardner Leader we have a Team of Family Law experts with experience in pension matters, alongside a pension actuary who can help navigate the complexities and ensure the best possible outcome. We understand the challenges which are not unique and can be managed with the right support and guidance to support a divorcing spouse through the process to aim to provide peace of mind and financial security for the future. Contact Stephanie Buckeridge or read more information regarding our Family Team services.