Pension Sharing on divorce – comparing England and Australia
According to statistics from the Australian government, at the end of June 2022, over 1.1 million people who were born in the United Kingdom were living in Australia. Figures for 2021 estimate that 165,000 Australian-born people lived in the UK. This means that there are a lot of people who have lived and potentially worked in both countries.
In Australia, employers have been required to make contributions into a superannuation fund (the equivalent in England is a pension fund) since 1992. The minimum compulsory percentage contribution has changed over the years, and currently stands at 11.5% of an employee’s “ordinary time earnings”. This is only the minimum contribution – contributions might be more. In England, the minimum contribution is 8% of “qualifying earnings”, with employers being required to make a minimum contribution of 3%. Pension funds on behalf of employees have been compulsory since the Pension Act 2008 came into force in 2012.
Given the freedom of movement between England and Australia, and the fact that both countries have compulsory superannuation / pension funds for employees, the superannuation or pension fund is likely to be a valuable financial resource on any financial settlement following divorce proceedings. In 2022 the Office of National Statistics reported that 42% of the wealth held by households in the United Kingdom was held in pensions. It is perhaps worth noting that in England, unmarried partners cannot claim a share of their partner’s superannuation fund as they can in Australia.
An English pension fund will only divide or share a fund following a pension sharing order made by an English Court. If the divorce and financial proceedings are outside of England, then the English Court can only make a pension sharing order following an overseas divorce, if one of the parties is domiciled or resident in England, or there’s a matrimonial home in England, in which at least one party has a beneficial interest in. Prior to Brexit, reliance could be placed on the ‘forum of necessity’ and the EU Maintenance Regulations, but since Brexit this is no longer available. The situation now is that if the criteria of domicile / residence / a family home aren’t met, then a pension sharing order can no longer be made in England in relation to an English pension fund, following an overseas divorce. So, what can the parties who have pension funds in England do, following an overseas divorce?
There is the option of “offsetting”. If there are sufficient “cash” assets, so for example, money in a bank account, equity in a family home, it might be possible for the value of the pension to be “offset” against these assets, with one party being awarded a large share of another asset, such as the family home. However, pension assets are very different to cash assets, it’s like comparing “apples and oranges”. If a couple are both young, they might not receive their pension fund for many years, and if the other party is to receive a cash sum “in lieu of” their interest in the pension fund, should a “discount” be given to the party receiving the cash sum for effectively an early payment of these monies? Are there any benefits which the party “giving up” the pension fund will lose? How should these be dealt with and “calculated”? These and numerous other issues can arise and an expert report from a Pension Actuary should always be obtained to report on these issues. The drafting of a letter to a pension actuary needs to be carefully undertaken and consideration given to the questions to be asked. This is something our expert team at Irwin Mitchell can assist with.
Separating parties are told of the importance of knowing the “assets” available for distribution. Pensions are an important asset available which may have benefits which are not taken into account in the CETV. To ensure a fair and equitable financial settlement, full and correct investigations into pension funds and their value can be undertaken.
For more information, please contact our family law team.
