Do I need to get my pension valued for my divorce?

The BBC recently published an article entitled "I can't get divorced as I can't get my pension valued" about people waiting years to get divorced. Is this correct? Why? And is this the full picture?

This article explains and gives hope for some couples who know that the McCloud Judgement (explained below) does not apply to them and where the pension being shared is not the government scheme affected by these delays.

Understanding the McCloud Pension Remedies impact on Public Sector Pensions on Divorce

If you're going through a divorce and have a public sector pension, you might have heard about the McCloud Judgment and its potential impact on your pension benefits, and the delays it is causing to people’s divorces. But what does this mean for you, and how could it affect your divorce settlement? 

I have tried to break this down into simpler terms below.

Firstly, what is the McCloud Pension Remedy?

The McCloud Judgment stems from a legal case about age discrimination in public sector pension schemes. In 2015, the government introduced reforms that changed the structure of most public service pensions, moving members into new "reform" schemes. However, these changes didn’t apply to older members who were nearing retirement, keeping them in the old "legacy" pension schemes. The Court of Appeal ruled that this created unfair age discrimination between younger and older members, as those in the legacy schemes had more favourable pension terms.

As a result, the government had to fix this discrimination, which led to the McCloud remedy. This remedy involves reversing the treatment of pension scheme members during the problematic period (from 1 April 2015 to 31 March 2022) when younger members were moved to the reform schemes, while older members stayed in the legacy schemes. To correct this, the government is implementing a "rollback" process that will put all members back into their legacy schemes for this period.

How Does This Affect You in Divorce Proceedings?

For divorcing couples, the McCloud remedy means important changes to how pensions are valued, especially if one spouse has a public sector pension. Here’s what you need to know: 

1. Rollback and Its Timing
   
   As of 1 October 2023, all members of public sector pension schemes who were affected by the McCloud case were moved back into their legacy schemes for the period from 1 April 2015 to 31 March 2022.
   
   When the individual reaches retirement, they will have the choice to either keep their pension benefits as if they were part of the legacy scheme or choose to treat them as part of the reform scheme for that seven-year period.
   
   At retirement, the pension holder will choose whether to have their benefits during the remedy period treated as legacy scheme benefits or reform scheme benefits.
   
   For some, the legacy scheme may be more beneficial, while for others, the reform scheme might provide greater value. The decision will depend on factors like pay increases versus inflation, which can affect the overall pension value.
   
   
2. What Does This Mean for Divorce Settlements?
   
   The key date to be aware of is 1 April 2025*, by which time everyone affected by McCloud should have been given a statement (known as a Remedial Service Statement) outlining what their benefits will look like under the legacy or reform schemes.
   
   For divorcing couples, this means that if a pension-sharing order is being considered, it’s crucial to know whether the pension holder has been affected by the McCloud remedy and what choice they might make at retirement. This can significantly impact the value of the pension.  It is often necessary to instruct a Pensions on Divorce Expert (PODE) to assist.
   
   
3. The Role of a Pensions on Divorce Expert (PODE)
   
    A PODE helps to ensure that pensions are accurately valued and fairly divided in divorce settlements. They provide specialist advice on complex pension issues and assess the long-term impact on both spouses’ financial futures. Their expertise ensures that pensions are properly understood often avoiding costly mistakes. 
   
   Many Teachers’ Pension members are still waiting on their CETVs and have been for several months or even years following the McCloud Judgement. This has undoubtedly added stress to what is already a very difficult time. In December 2024 Teachers’ Pensions provided an update explaining their delays and that most CETVs were expected to be completed by February 2025 with two exceptions, members with ‘rollback choices’ or those who are retired and have not yet made an election following receipt of their Remedial Service Statement. 
   
   Some actuaries can calculate pension sharing orders, for example from teachers’ benefits statements without waiting for a CETV if the pension is not the pension that is being shared and the McCloud judgement does not apply to them.
   
   
4. Impact on Pension Sharing Orders
   
   If the pension sharing order is issued before the McCloud choice is made, it could be based on outdated figures, and the pension’s value could change once the individual makes their decision.
   
   To avoid complications, it’s recommended to request up-to-date pension valuations (CEVs) after the rollback, ideally by 2025, to ensure accurate figures are used in divorce settlements.
   
   
5. Complexities in the Local Government Pension Scheme (LGPS)
   
   While most public sector pension schemes are affected by the McCloud remedy, the local government pension scheme (LGPS) has different rules, and only a few members will be impacted.
   
   
6. What Should You Do?
   
   If you’re a member of a public sector pension scheme, check with your scheme administrators to confirm whether the McCloud remedy applies to your pension. If you’re going through a divorce, it’s vital to ensure that your pension is accurately valued, taking the McCloud remedy into account.
   
   You may need to delay finalising your pension-sharing order until after April 2025 when all options are clear, and all necessary assessments have been completed.
   
   

   Key Takeaways:

• The McCloud remedy corrects unfair age discrimination in public sector pension schemes, meaning pension holders may have the option to choose how their pension benefits are treated for the period between 2015 and 2022.
• Be aware of important dates such as 1 April 2025, when you will be provided with a full breakdown of your pension options, and plan accordingly.
• If you’re getting divorced and have a public sector pension, the McCloud remedy could impact the valuation of your pension. It’s crucial to check your options carefully and seek expert advice to ensure that your settlement is fair. We offer a fixed fee consultation which can assist you in assessing your options. 

If you're in the midst of a divorce or expect one in the near future, understanding the McCloud remedy is key to ensuring your pension is treated fairly. Take the time to review your legal options and, where necessary, seek professional advice to navigate this complex issue.

Call 0330 0945 500, email family@nevesllp.co.uk  or complete our Contact Form and we'll get back to you.

*although legislation required the issue of Remedial Service Statements by 1 April 2025, the Teachers Pension website now says that for reasons outside its control some statements will not be issued until the end of September.