30 April 2020

Pensions in Divorce during COVID-19

The current pandemic has caused stock markets to fall and significant uncertainty as to how and when this might improve. Katy Osborne, partner and head of the Family Law Team, explains that this will inevitably have an impact on pension sharing in divorce. Consideration will be needed as to whether further updated valuations are necessary and what delays this might cause.

Regulations have been changed to allow an additional 3 months for Cash Equivalent Transfer Values (CETV) to be provided. Organisations are still only required to provide one CETV in a 12-month period. Some are not providing values during lockdown and certainly requests will not be prioritised currently.

The impact will vary depending on the schemes involved:

  • Public Section Defined Benefit Scheme valuations should remain unchanged as they are based on factors published by the Government Actuary’s Department which have not changed.
  • Private Sector Defined Benefit Scheme valuations however are based on a number of factors – significantly influenced by 15-year UK Gilt yields. In the current crises these have fallen but a fall in Gilt yields normally results in a higher CETV.
  • The fluctuations in the value of Defined Contribution Schemes will depend upon the underlying investments held and the level of risk involved.

The falling stock market of course will impact solvency levels for defined benefit schemes and may see CEVs reduced as a result of funding levels. A further issue is the actual solvency of the employer which may result in more schemes falling into Pension Protection Fund.

Pension Sharing Orders will be implemented on the basis of the CETV calculated within the 4-month implementation period. The timing is entirely decided by the Pension Scheme Administrators.

More than ever it will be important to have independent financial advice.

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