Can mediation deal with pensions on divorce?
Jo: So Mena, you are an accomplished solicitor, arbitrator, writer, speaker and trainer with a specific interest in pensions. You will shortly be the new Co-Chair of the Law Society’s Family Law Committee. What is your experience of mediated settlement proposals when it comes to pensions?
Mena: It is variable as you might expect when dealing with different mediators. Pensions are such a difficult area that lawyers and mediators alike have varying levels of interest and familiarity with pensions. The clients themselves often want to overlook them because it is easier when their primary focus is the house and any children.
How do you think pensions can be approached in mediation to ensure they receive due care and attention by the parties?
JO: You are so right the clients may wish to overlook them because they want to focus on housing and/or their immediate short to medium term needs. Indeed, many couples don’t realise that the pensions are a crucial aspect of the division of their assets. I have often heard couples say either, ‘I don’t want a share of x’s pension, they earned it’ or ‘We have decided not claim on each other’s pensions’. Or if the couple do understand or want the pensions to be shared they opt for, ‘let’s just add them up and divide them in two’. As a mediator I must give legal information about each of these false assumptions.
I think the mediator needs to really explain how significant pensions are in not only the scheme of their assets but the effect on their retirement incomes. That the court (as part of obtaining a financial order by consent) will (or ought) to want to know about the value of their pensions and also what they plan to do with them. The valuation of their pensions also includes the state pensions. We will need to consider the implications of these pensions especially those of women given that women can no longer rely on their husband’s National Insurance contributions (to top up their own pensions after divorce) and of course the equalisation of state retirement ages.
So far so good. I think the mediator needs to really emphasise and ‘sell’ the need to fully explore the pensions and options for their sharing (or as a last resort, offsetting). And that this is not something to be rushed. As not many people understand pensions or how to correctly divide them on divorce, getting help seems to me to be vital.
The recent Pensions Group Advisory Report (PGAR), A guide to the treatment of pensions on divorce, makes very interesting reading; but I was so pleased at the long section on PODE’s – could you explain what they are and why they are so important?
Mena: A PODE is a pension on divorce expert (PODE) these are financial experts who specialise in divorce, often those who write reports as single joint experts. Shadow PODEs are defined as an expert instructed by one party to advise that party on the questions to ask the single joint expert. Pensions are so varied and complicated that it is important to engage the services of an expert to provide information and advice that the solicitor or mediator aren’t able to input. Solicitors and mediators aren’t regulated to give financial advice so it is vital that a PODE is involved. Sometimes the PODE will need to be a single joint expert so that a report is produced within court proceedings or NCDR for both parties to rely on the information provided. At other times the PODE will only be instructed by one party and that may be in the context of financial planning overall or to give advice after the report is produced as often a number of options are given for resolution of the matter. It is important that parties don’t seek to resolve pension issues without reference to a PODE.
How often do your clients get a PODE involved during the mediation process? What can be done to emphasise the importance of financial advice?
Jo: I always encourage my mediation clients to get a PODE involved. Sometimes, clients understand the need to get some help on pensions and see if their mutual independent financial advisor (IFA) can help. I ask the clients (or I) ask their financial advisor (IFA) if they are a PODE. The PGAR (see link below) helpfully sets out the definition of a PODE at Appendix D and asks the possible reporter to self-certify that they have the relevant competencies. More than once such IFA’s have counted themselves out.
(Download the full report for free here).
To be clear I want ALL my clients to use a PODE.
Most often they do take my advice and use a PODE to get a full and helpful report. Not getting financial advice on the pension is a bit like putting your house on the market and just guessing what it’s worth. Might be right, might be wrong – take any offers? No, most people at the very least would seek advice from several estate agents to see what the market price is before seeking offers.
My role as a mediator is to really emphasise how important pensions are. Often, they are the largest asset, once I explain in real terms what it means to secure income in retirement. So, I often use the example that if there is a guaranteed income upon retirement what it would mean in cash terms. An income of £15,000 pa would need £300,000 invested over a long period with very generous interest rates (which we don’t have at the moment). [This is illustrative only and not financial advice].
I often wonder if we ought to make the receipt of a pensions report by a PODE compulsory for divorcing couples; what do you think Mena?
Mena: I think it would be a great idea to make it mandatory for divorcing couples to see a PODE for an information meeting regarding the pension’s issues before any final decisions are made and an order is sent to the court. Think of it like a Pensions information and Assessment Meeting (PIAMs) like the MIAMS. Both parties must attend and find out information together about the pension from a PODE. That person can therefore make recommendations about the necessity for a report to help the parties to make any final decisions about the pensions. If the parties don’t attend the PIAMS they can’t send a consent order to the court for approval. This would really help the parties to fully understand from a PODE exactly what the pension benefits are.
Finally, it is really useful the PAG is producing a lay guide to pensions in the near future. This should help couples to understand their pensions better and equip them for complex discussions about pensions.
Jo: I love this idea. PIAMs here we come!
Mena Ruparel MCIArb