Introduction
Since the introduction of pension sharing by the Welfare Reform and Pensions Act 1999 (WRPA 99), the structure of a pension can now be changed and divided between the parties divorce and nullity but not for judicial separation. This means that as a result of the pension sharing order, a pension debit will be created and the members retirement benefits will be reduced.

At the same time of the pension debit as the step-by-step guide shows, an equal value will be transferred by a pension credit to the former spouse, thereby achieving a clean break between the parties. This pension credit can be achieved by an internal transfer to the existing scheme where dual membership is allowed or if not permitted, an external transfer to another scheme.

If the pension arrangements are money purchase schemes such as a personal pension or stakeholder pensions and are low in value in relation to other matrimonial assets or in absolute terms, it is unlikely the court would require a pension audit but instead rely on the cash equivalent transfer value (CETV) from the provider, especially if the cost of expert evidence could not be justified. Where this is not the case the court must have regard to procedure rules. The court can apply expert evidence rules to appoint a single pensions expert, that must themselves comply with financial services rules.


Applying orders
Where the parties intend to use pension sharing it is important to achieve a fair value of the retirement benefits as once the order has taken effect it cannot be varied later, in part because it will be out of time as stipulated in the provisions of the Divorce etc (Pensions) Regulations 2000, as well as new provisions in the MCA 1973 inserted by the WRPA 99 protecting the pension scheme and scheme trustees from variation.

This means that if the pension arrangements are found to have been valued incorrectly at the time the order was made by the court, for example the providers CETV was used for the valuation of a defined benefits scheme creating a shortfall compared to a fair value for these benefits, the former spouse will be unable to apply for further compensation from the members pension rights.

A pension audit should also be used where the parties intend to apply offsetting and earmarking as solutions to pensions on divorce. In practice, financial services rules of best advice must be applied to give the parties the correct information initially on divorce.

Although a variation of settlement order can be applied for at a later date if the retirement benefits are initially valued incorrectly, this additional process would create extra cost in time and money for both parties. It would therefore be preferable given the relevant pensions for both parties to appoint a pensions expert to value the benefits whether the outcome is offsetting, earmarking or pension sharing.

A pension audit will also indicate from the information supplied as shown in the step-by-step guide to the former spouse whether the pension credit can be applied as an internal transfer or as an external transfer where further pension transfer advice may be required.


Court procedure rules [step-by-step guide]
In divorce cases where there are complex pension arrangements and the parties have appointed a pensions expert to provide expert evidence the court will work with the parties to this end, whether this results in offsetting against other matrimonial assets, earmarking or pension sharing of the members pension rights. In all cases there will be the need for the court to be satisfied that the extra costs associated with expert evidence are justified.

The court will have regard to rule 2.51B of the Family Proceedings Rules 1991 that states that the overriding objective of the court must be to ensure that the parties are on an equal footing and deal with the case in ways which are proportionate to the amount of money involved, to the complexity of the issues and to the financial position of each party. For an earmarking order the court will require projections to retirement rather than the CETV, however, as earmarking orders can be subject to variation in the future complex and expensive expert evidence from an actuary may not be justified and the court would look to the provider or an pensions consultant that is suitably qualified as a pensions expert to provide the projections.

For pension sharing there will be no opportunity for variation before the court grants the decree nisi or after granting the decree absolute so the court will be particularly concerned with achieving a fair value of the retirement benefits for both parties and therefore inclined to need expert evidence to produce a CETV adjusted as appropriate, such that can be provided by a pensions consultant that is a pensions expert.


Expert evidence rules [step-by-step guide]
During ancillary relief proceedings the court can have regard to rule 2.61C of the Family Proceedings Rules 1991 that apply to part 35 of the Civil Procedure Rules 1998 regarding expert evidence. This states that expert evidence will not be allowed (whether written or oral) unless permission has been given by the court and the court will only give such permission if expert evidence is reasonably required and justified in light of the overriding objective as stated in rule 2.51B of the Family Proceedings Rules 1991.

Only where the pension arrangements as part of the matrimonial assets of the divorce are substantial and complex would the court consider such evidence. In most cases the need for additional actuarial evidence provided by an actuary will not exist and the court will be satisfied with projections from the provider where the CETV is acceptable or projections from an independent financial adviser as a pensions expert where an adjusted CETV is required as evidence as would be the case for a final salary pension or public service scheme.

If the court has established the need for expert evidence but there is no agreement between the parties as to the pensions expert to appoint, the court will use its powers to instruct that evidence be given by a single pensions expert.


Financial services rules
Under the Financial Services and Markets Act 2000, formally the Financial Services Act 1986, the best advice rule means that anyone advising on buying or selling investments or pensions must give clients and prospective clients best advice. This means the adviser will need to be aware of the client's circumstances and show where possible that the recommendations are based on an unbiased evaluation of what is best for the client.

For the know your client rule, the requirement of the adviser to evaluate an existing or prospective client's circumstances and investment objectives as would be reasonably expected in order to provide the best advice to the client. Both these rules are applicable to pension transfers on divorce relating to an external transfer of the pension credit.

For an independent financial adviser advising on an external transfer from a defined benefit occupational pension scheme the Financial Services Authority (FSA), formally the Personal Investment Authority (PIA), Handbook of Rules and Guidance for permitted activity 13 requires the IFA to hold a professional qualification being G60 Pensions or equivalent. The PIA had previously confirmed that this rule applies even when a court makes a pension sharing order but the occupational pension scheme does not allow for dual membership, effectively imposing an external transfer with no advice given. Individuals giving advice on investments and pensions must be an authorised person.

The new rules brought in by the FSMA on the 30 November 2001 mean that there must be a clear distinction between the activities of an IFA regulated by the FSA and the activities of exempt professional firms regulated by designated professional bodies (DPB) such as accountants and solicitors that choose this designation because they will not be advising clients on any regulated activity, such as a pension transfer, that is not exempt regulated activity. However, the valuation procedure of pensions is not a regulated activity.