Pensions valuation and the “relevant date”

An interesting judgment was delivered earlier this year in Dumbarton Sheriff Court in S v S. Although the decision was appealed, the appeal was subsequently abandoned.

The issue of most note was the value to be attributed to the pursuer’s pension for divorce purposes. Surely a relatively straightforward exercise, most family law solicitors might say? However, the unusual set of factual circumstances in S v S served to highlight the conflict between the provisions of the Family Law (Scotland) Act 1985 as amended, and the Divorce etc (Pensions) (Scotland) Regulations 2000 (SSI 2000/112). Which would have supremacy in determining the value, and did the primary legislation play the trump card?

Changing valuations

The parties separated in or around March 2011. In April, the pursuer requested a cash equivalent transfer value (CETV) of her pension for divorce purposes from her employer’s pension scheme. This was confirmed informally. As the value was above a certain threshold, it required to be verified by the scheme’s actuaries. The actuaries however formally confirmed the CETV to be almost £100,000 higher than the figure first provided. In July 2012, the pursuer sought clarification for the significant difference in values. At this stage the scheme’s actuaries indicated that they had made an error in their calculation of the CETV. They had valued it at the date of separation being March 2011, when it should have been valued at the date the value was requested, namely April 2011. The reason for the significant difference was a revaluation by the actuaries of the true value of the pension scheme which applied from 1 April 2011. Accordingly, they revised the CETV downwards to reflect the position as at the date the request for the CETV had originally been made. Two values were therefore available. No further request for a CETV was made by the pursuer.

The 1985 Act

Section 10(2) of the 1985 Act provides that the net value of a person’s property shall be the value of the property at the relevant date, after deduction of any debts etc. By virtue of s 10(3), “relevant date” is defined as the date the parties ceased to cohabit or, if earlier, the date of service of the summons in the action for divorce.

Specific reference is made to pension arrangements in s 10(5). Furthermore, s 10(8) permits the Secretary of State to make regulations providing for the calculation and verification of valuation of pensions. It follows therefore, and it is uniformly accepted, that the crystallisation date for valuation of matrimonial property is the “relevant date” or the date of separation.

The 2000 Regulations

Regulation 3 states that the valuation of any benefits under a pension arrangement shall be calculated and verified, for the purposes of the Act, in accordance with this regulation and reg 4. By reg 3(2) the value, as at “the relevant date”, of any rights which a party has under a pension arrangement shall be calculated in accordance with a number of scenarios: for example, whether or not a party is an active member or deferred member of a pension scheme, etc.

In S v S, the pursuer was an active member of an occupational pension scheme, therefore reg 3(4) applied. This provided that in such a case the valuation of the benefits should be calculated and verified on the assumption that the member had made a request for an estimate of the cash equivalent that would be available to them if their pensionable service were to terminate on the date on which the request for the valuation was received. Further qualification is given in reg 3(11) to the effect that if the request is more than 12 months after the relevant date, the date for valuing the benefits shall be the relevant date.

The sheriff’s decision

By the time of the proof both parties were unrepresented. On the matter of the pension valuation the sheriff heard from the pursuer and the actuary. For the defender, the only oral evidence advanced was from an expert actuary whose view was that the relevant date valuation was commonly used. The pursuer argued that the “date of request” valuation provided for in the regulations should apply. The defender argued that the “relevant date” value be used in terms of the 1985 Act, which had to take precedence over the regulations.

The sheriff recognised that in most divorce actions, only one CETV will have been produced, and will have been accepted without challenge even if an alternative valuation might be readily available. It was a matter of agreement that there was no authority on point nor any persuasive analogous cases.

The sheriff preferred the pursuer’s argument. He noted that the 1985 Act provided at s 10(3A) for different valuation methods according to the circumstances. An example was the “appropriate valuation date” being substituted for “relevant date” value where property is transferred by court order. That subsection was introduced by the Family Law (Scotland) Act 2006. Section 10(8) of the 1985 Act was inserted by the Pensions Act 1995, which took a different route: instead of amending the primary legislation in specific terms, it gave power in s 10(8) for regulations to be made regarding the calculation of pension benefits.

Indeed, the sheriff was of the opinion that the 2000 Regulations were made in exercise of the powers conferred by s 10(8) and were therefore to be followed. There was clear recognition that pensions were to be distinguished from other assets and their valuation treated in a discrete way. Pensions (and pensions alone) were to be calculated and verified in relation to their valuation for the purposes of the 1985 Act in accordance with those regulations. The sheriff preferred the 2000 Regulations' “date of request” value and applied the revised lower valuation. He was also mindful of the principle of fairness enshrined in the 1985 Act and was of the view that the defender should not benefit financially from the actuaries' admitted mistake.

Commentary

It was a rather unique set of circumstances that applied here where there had been a significant revaluation of the pension scheme. The CETV had been requested within the 12 month period. Some may not be aware of the possibility of requesting a second CETV after 12 months. Such a request is likely to attract a charge. The pursuer elected not to do so in this case. The sheriff justified application of the “date of request” as per the 2000 Regulations as this was pursuant to the 1985 Act, rather than contrary to it. Many will disagree.

A “special circumstances” argument was pled as an “esto” position if the “relevant date” value was accepted by the sheriff. This was to the effect that there should be unequal division in favour of the pursuer on the basis of the significant decrease in value of the pension within one month and that the pursuer did not have access to those funds. The sheriff did not have to consider this argument and we do not know whether it would have been successful.

In addition, there arose the issue of transferred-in credits prior to the marriage which could not be extrapolated from the CETV. In apportioning the pension relative to the period of the marriage, these credits were added, in years, to the period of reckonable service, again providing a more equitable result.

At the end of the day, if there is any doubt at all regarding the value of a pension, a second request for a CETV can always be made after 12 months have elapsed, which will produce a “relevant date” value.