W v H – Pensions in Financial Remedy Proceedings: Everyday Issues Explained by Nick Power

Thu 4th Jun 2020

HHJ Hess has recently considered the vexed issue regularly encountered in practice as to the approach the court should take in respect of (i) whether pension sharing should look to achieve equality of income or equality of capital; (ii) whether pre-marital contributions should be ringfenced; and (iii) offsetting.  It is an essential case for all practitioners and the full judgment can be found by clicking here

The facts

The wife is 50 and the husband 48.  They met in 1998, cohabited from 1999 and married in 2005.  They separated in 2016 making it a long marriage (including cohabitation) of 18 years.  They have 3 children ranging in age from 10 to 18 who live with the wife.

The principal capital asset is the family home with a net equity of £241,000 (it has a substantial mortgage of £466,000).  Each has some debt.  The most valuable assets are the pensions.  The wife has a defined benefit scheme valued at £139,000 and a defined contribution scheme valued at £14,000.  The husband has a defined benefit scheme valued at £2.155m and a defined contribution scheme valued at £59,000.

The wife had not worked since the birth of their first child in 2001 but had, since separation, initially found modest employment and now operated a small business from the family home.  She expected her earned income to grow to about £1,100 per month and if in employment would likely earn about £18,000 per year.  This was accepted by the Judge.  The husband is in well paid employment and his income was calculated by the Judge (to include bonuses which were sufficiently regular) at £9,631 per month.  He is cohabiting and his partner earns £4,100 per month.


The Judge dealt with the housing and capital issues simply.  The family home was to be held on a Mesher order until 2024 when it would be sold and the proceeds divided equally.  He made a reducing term spousal maintenance order to the wife’s 60th birthday, a top-up child maintenance order (again reducing as each child reaches 18) and an order for each child from the end of secondary education to the conclusion of tertiary education.  Whilst subsidiary points in the importance of the case the Judge’s analysis and rationale for the orders is a helpful reminder of the relevant principles.

The pension issue dominates the case.  It is unsurprising as HHJ Hess is a co-author of the PAG report.  He takes the opportunity to say that it should be “prima facie persuasive in the areas it has analysed”.  In dealing with the 3 points identified at the outset of the article he takes the following approach:-

Should pension sharing look to achieve equality of income or equality of capital?

(i)“There is no ‘one size fits all’ answer to this question”. In some circumstances this would be fair and in others in would not;

(ii)The PAG report states that in a needs based case and in particular where there is a significant defined benefit scheme fairness is likely to be based on an equalisation of income;

(iii) As the purpose of a pension fund is usually to provide income it is often fair to provide for equality of income (where the pension is accrued within the marriage) and particularly where the parties are closer to retirement;

(iv) In a needs case the level of income that a pension share will produce has to be known;

(v) In this case bearing in mind the ages of the parties, the size and largely defined benefit nature of the pension funds, and the limited other capital assets the starting point to achieve fairness and equality is to create equal income.

Should pre-marital contributions be ringfenced?

(i) A common approach has often been, irrespective of needs, to carry out a straight line deduction to the value of the pension to reflect the number of years pre-marriage (or cohabitation) where contributions have been made – “this approach carries with it significant risks of unfairness”;

(ii)Excluding pre-marital contributions is, in effect, identifying it as non-matrimonial property and apportioning a pension in this was way “seems a logical extension of this and pension funds are rarely subject to the ‘mingling’ which often occurs in relation to cash assets”;

(iii) In a sharing case this may well be legitimate in principle although the court may retain an element of discretion;

(iv)In a needs case where the pensions are the main source of post-retirement income and do not produce a surplus “it is difficult to see that excluding any portion of the pension has justification”;

(v) The straight-line deduction is often unfair as, in a defined benefit final salary scheme, the pension will gain more value in the latter years of contribution as the member’s salary increases. Other methodologies can be used for example calculating a notional CEV on the basis that earnings post-marriage have only increased with inflation;


(i) The orthodox view is that pensions should be dealt with separately with a focus on the income they produce;

(ii) Mixing pensions with other capital risks unfairness and “absent agreement, it may be unfair anyway to burden one party with non-realisable assets while the other party has access to realisable assets.”


Applying these principles to this case the Judge, against the husband’s argument for ringfencing and the wife’s argument for an element of offsetting on the basis that she wished to retain all of the equity in the family home, divided all of the pensions so as to provide equality of income at age 60.

To ringfence pre-martial contributions would fail to meet the wife’s needs.

To offset would leave the husband without a deposit to buy a house until age 60 when he could access his tax-free lump sum and at which point it would likely be too late to purchase a home.

HHJ Hess’s analysis is the first time in recent years, if ever, where a reported case has grappled with the pension issues encountered daily in modest asset, needs cases.  There can be no doubt it will be referenced regularly in argument and it provides a significant aid when advising as to potential outcomes.

Nick Power

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