When the whole pension freedoms regime was being anticipated, I went on the road and did a series of roadshows on the new rules.
In my official role as something of a pensions geek, I had a few slides on how some of the perennial pension issues could be affected by the changes.
One of these subjects was pensions and divorce, and since then I have been lucky enough to be invited to speak to a good number of solicitors and barristers on how this might change in the future.
It now appears that the FCA has also been thinking about this and, while it is well intentioned, I am concerned that the changes that they are suggesting might be too little and in the wrong direction.
In the paper CP15/30, Pension Reforms: proposed changes to our rules and guidance, which was published in October 2015, the FCA proposed trying to mitigate the effect of the pension freedoms on pension attachment/earmarking orders on divorce.
The whole issue of the treatment of pensions as part of a divorce settlement is still relatively recent, with earmarking orders introduced in 1996 and pension sharing in 2000.
Three options are available: pension offsetting, pension earmarking and pension sharing.
Pension offsetting
This is one option, which had been previously used where the pension was attributed a value and assets to the same value were allocated to the other party. So a pension that was worth, say £500,000, could be kept by one spouse and a house of similar value allocated to the other.
Indeed, in spite of the availability of the other pension remedies, offsetting has remained popular as it has often been seen as the easiest.
For a good consideration of how the law and practice in this area has developed, it is worth reading Pensions and Divorce: An empirical study by Hilary Wood and Mark Sefton (2014 Cardiff Law School).
Let us have a look at some of the other options and the effect of the new rules.
Pension earmarking
It is important to realise that, even when subject to a pension attachment/earmarking order, the pension still belongs to the original scheme member. In effect, what happens is that the order instructs the recipient to pass over part or all of the benefit to the ex-spouse when it comes to payment.
The ex-spouse has no control, as the benefit only begins when the member retires, even to the extent that the death of the scheme member before retirement could mean no provision for that ex-spouse unless the order specifies that death benefits are attached.
Pension earmarking was, to a large extent, the opposite of what the courts sought to achieve in divorce cases – that is, a clean break.
