21 January 2022
‘Moving Target Syndrome’ – Is there a cure?
Ever since pension sharing on divorce was allowed for the first time, over 20 years ago now, pensions have been on the agenda in any financial settlement. With the capital drawdown and tax changes of recent years, as well as changes as to the assets a pension can hold, their importance, and often their value as a financial vehicle during the marriage, has only grown. Yet for many clients, a pension can seem a long way off, and the process of agreeing and implementing a pension sharing order is often overlooked.
The recent case of T v T brought several of the issues involved in this arena to light and provided a helpful reminder of some of the complexities of what is, if not a neglected area, then certainly one that is not always given the time it deserves.
In T v T, the parties had attended a Final Financial hearing in 2015. The Court ordered that 40% of the husband’s company pension, then with a cash equivalent value of £826,125, was to be transferred to the wife, and the husband and wife would retain their other pensions. It appeared that this was intended to reflect the fact that the wife was keeping all of the house, and so the husband was to retain slightly more of the pension.
The Order was not sealed until May 2016, 7 months later, and during that time neither party applied for Decree Absolute, to formally end the marriage. There were then difficulties in completing the pension sharing annex, and as Decree Absolute had not been granted, the Order did not come into effect at this time.
It then came to light that the husband’s company pension had been revalued in the course of late 2016/2017 and the cash equivalent value was now almost double the previous value, at £1.6m.
The wife made an application to the Court in this regard asking for a declaration that the 40% share of the pension fund in her favour applied to an uplift in value, and also applied for Decree Absolute. The husband applied successfully to hold up the pronouncement of Decree Absolute, and also applied to vary the Pension Sharing Order.
Both sides were criticised by the Court over the delay and how they had approached this issue.
The Court was clear that it had jurisdiction to vary a Pension Sharing Order, provided that any such application is made before implementation and before Decree Absolute is pronounced. Therefore it would be, as the Judge said, very rare in practice indeed. It was held that the power to vary a Pension Sharing Order would be used “sparingly”, and only when “anticipated circumstances change very significantly, and/or for cogent reasons rendering [the original Order] quite unjust or impracticable”.
In this case there were three main reasons given as to why the change in the value of the pension did not justify any variation.
- First, the valuation figure is produced actuarially, representing a sum of money that will be needed to produce the stated income on retirement. This is likely to change over time and by consequence of change in the financial markets.
- Second, the husband’s 60% share had of course also increased in value, and no injustice would be done to the husband by the wife receiving more.
- Third, it was the husband’s action that caused the delay in implementing the original Pension Sharing Order, which had in turn led to ‘Moving Target Syndrome’ being so pronounced in this case.
The Judge therefore dismissed the application for a variation, and made a Costs Order of £100,000 against the husband.
Moving Target Syndrome, although sounding rather like a medical condition, is something that can have a pronounced effect in cases where a pension share takes place. Essentially, under English law pensions can only be divided on divorce by a percentage between 0 and 100%. There is always a risk that that value of that percentage can go up or down between agreement being reached and a pension sharing order being implemented. Here, where the delay was several years, for a variety of reasons that caused a big change.
What can be done to mitigate against changing pension values during a divorce?
First, always get as up to date information as possible as to the value of any pensions. Professional advice may be needed as to unusual or idiosyncratic pension funds. That information may need updating during the proceedings.
Second, consider if professional advice is needed as to the actual division of the pensions, or offsetting different assets against what is held in pensions, whether based on capital values or income produced, and also as to internal and external transfers, which caused some difficulty in T v T. Pension companies can change their mind on whether to allow external or internal transfers, and having to transfer money out on a pension share can mean a substantial loss. The recent advice from the Pension Advisory Group is not to specify an internal or external transfer in the Court documents to mitigate against this.
Third, once agreement is reached, write and ask the pension company to approve the draft pension sharing annex. They will often have comments that would otherwise delay implementation.
Fourth, once the order has been made, Decree Absolute needs to be granted, and the sealed documents sent to the pension company, for the four month implementation period to begin. In many cases it can take time for an order to be approved and agreed, particularly after a hard fought Final Hearing, as here, and, for one reason or another, as in T v T, the parties may not apply for Decree Absolute.
However, it is always going to be hard to come up against economic shifts or changes in the internal valuation methodology of a pension, and there is no absolute ‘cure’ for Moving Target Syndrome. The best preventative remedy is to agree a pension share on up to date valuations and to implement it swiftly, so that the valuation day is as close to the value used in negotiations as possible, as the parties intended.
10 New Square, Lincoln's Inn, London WC2A 3QG
DX 40 London/Chancery Lane
Tel: 020 7465 4300 Fax: 020 7465 4400 www.phb.co.uk
This publication is not intended to provide a comprehensive statement of the law and does not constitute legal advice and should not be considered as such. It is intended to highlight some issues current at the date of its preparation. Specific advice should always be taken in order to take account of individual circumstances and no person reading this article is regarded as a client of this firm in respect of any of its contents.
The firm is authorised and regulated by the Solicitors Regulation Authority: SRA Number 807106
© 2021 Payne Hicks Beach LLP
Back to Legal Updates Listing