THE PRIVATE CONSEQ UENCES OF PUBLIC SERVICE: PENSIONS AND DIVORCE 

Published on 03 October, 2024 | Alison Fernandes

The public sector is an essential part of the fabric of the UK, providing many of the services which we regard both as familiar and essential.

They include education, the emergency services, healthcare and law enforcement among others.

Many of us have friends or family members working in the public sector, an indication that it remains one of the country’s biggest employers.

That fact was borne out by figures published by the Office for National Statistics (ONS) in June which revealed that there are just under six million public sector staff, roughly two million of whom work within the National Health Service alone (https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/publicsectorpersonnel/bulletins/publicsectoremployment/june2024).

One of the benefits of their employment is a public sector pension. It differs from private pensions based on continual contributions and is what is known as a ‘defined benefits scheme’, with a value based on someone’s years of service and salary earned.

Public sector pensions have generally been considered fairly generous but, for divorcing couples, they appear to come with a catch.

Whereas the value of other assets divided between separating spouses when a marriage ends can be assessed relatively quickly, the valuation of public sector pensions can take many months.

Those delays can have significant consequences for thousands of individuals, not least because, together with their family home, a pension represents one of a couple’s largest assets.

The recognition of just how important pensions have become is evident from the work of a body called the Pensions Advisory Group.

It was set up in 2017 by the then President of the Family Division of the High Court, Sir James Munby, because of the need for “better understanding and consistency” in how pensions were treated on divorce.

In January this year, the Group published its second report, a document which Sir James’ successor claimed would “establish clear ground rules for the proper approach to be taken in cases in which pensions were involved” (https://www.nuffieldfoundation.org/wp-content/uploads/2023/A-guide-to-the-treatment-of-pensions-on-divorce-2nd-edition.pdf).

Acknowledging the importance of pensions, however, is just one part of what the judiciary realises is a pressing problem.

Obtaining the value – known as the Cash Equivalent Value, or CEV, for short – of a public sector pension can take far longer than its private counterpart.

I have dealt with cases in which it has taken more than a year for pension fund administrators to provide a public sector CEV.

Even then, couples need to secure the analysis of a pension expert to work out what their respective share of a pension should be to equalise their income from it.

That process – which can itself take several months – comes before negotiations between spouses as to how it might be most appropriately shared between them.

A pension expert’s report is usually required in most cases, except for those few instances when the size of a pension pot is rather small in the scope of a couple’s overall assets.

As a result, divorces involving one or more spouses working in the public sector arguably take longer than they really should.

I believe that is one factor behind data released by the Ministry of Justice in June which showed that divorces in England and Wales now taking 15 months on average from the initial application being made to the granting of a final order (https://www.gov.uk/government/statistics/family-court-statistics-quarterly-january-to-march-2024/family-court-statistics-quarterly-january-to-march-2024#overview-of-the-family-justice-system).

Some of those divorces may well have been affected by a suspension of public sector CEVs last year, while the formula underpinning those calculations was being reassessed (https://www.gov.uk/government/publications/public-service-pension-schemes-scape-discount-rate-methodology-a-gad-technical-bulletin/public-service-pension-schemes-scape-discount-rate-methodology-a-gad-technical-bulletin).

Even public sector professionals who part amicably and agree in principle how they want to divide assets including their pensions need to secure a CEV, as a family court judge must decide whether a financial settlement is fair.

Fairness is one of the fundamental elements of divorce law and why courts want to see full financial information, including evidence of pension valuations, before approving a divorce settlement.

Settlements are only binding and enforceable once they have been approved by a judge in the family court.

Any extended timeframe has a number of knock-on effects. The main one is that, financially and emotionally, individuals are unable to move on with their lives.

In an ideal world, public sector pension valuations would be provided far more quickly. After all, the valuation of other assets, such as property, bank accounts, shares and even businesses, can be done relatively fast.

Many people enter the likes of the NHS, the teaching professions, central or local government and police with the intention of making their own contribution to society.

Some would suggest that a failure to address the pensions issue is a very unwanted outcome of their public service.