Needs Must as the Devil Drives: An Analysis of Pension Sharing in Needs Cases

‘In all cases, pensions must be divided to provide equal income, regardless of any non-matrimonial element.’

Does this sound familiar?

If it does, read on. If not, I’ve been living in a pensions fever dream since 2019.

Pension sharing is a historically vexed process. It has been the cause of numerous complaints and negligence claims against financial remedies professionals and is generally thought of as complex and, frankly, boring.

Despite the relative ubiquity of pension sharing issues (or perhaps because most pension cases are considered needs-based due to the Lifetime Allowance), there is a dearth of appellate authority on the topic – the last case substantively addressing pensions being Martin-Dye v Martin-Dye [2006] EWCA Civ 681, [2006] 2 FLR 901 in the Court of Appeal.[[1]]

Thankfully, the Pension Advisory Group stepped in and grasped the nettle so all of us mere mortals who don’t know a Lifetime Allowance from our Annual Allowance didn’t have to, or so it would seem.

The Pension Advisory Group’s first report (PAG1) was a game-changer. It shaped the modern practice of pension sharing and provided a stable base from which the multivarious issues of pensions can be addressed.

HHJ Hess’ decision in W v H (Treatment of Pensions) [2020] EWFC B10 helped to cement PAG1’s legitimacy. The judgment is so helpful that, absent higher authority on the topic and pursuant to the updated guidance on citation of authorities issued by Sir Andrew McFarlane, Peel J retrospectively certified it as suitable for citation.[[2]] It is cited in the Red Book, as well as the Dictionary of Financial Remedies, and is regularly referenced in skeleton arguments across Financial Remedies Courts (FRCs).

Despite the express reference to the importance of treating a case on its own facts in both PAG1 and W v H, somehow there developed a view that pensions, including non-matrimonial accrual, should inevitably be divided to achieve equality of income in all ‘needs’ cases. That view prevails even today and is exemplified by the quote at the start of this article – a quote the author has heard in FRCs across the country. That view is arguably a symptom of the calcification of pension sharing practice, which is expertly addressed in Fiona Hay’s article ‘Is it time to reclaim s 25 in cases involving pensions?’ [2022] Fam Law 756, an article which bears reading for any practitioner who regularly deals with pensions.

So, from where did this approach come? It is not entirely clear, but it’s worth starting with PAG1.

PAG1

Part 4 of PAG1 (and PAG2) addresses the treatment of pensions in needs-based and sharing-based cases.

Paragraph 4.2 says, ‘the vast majority of cases – including cases involving low £millions – will be needs-based’ (original emphasis).

Paragraph 4.3 says, ‘It is clear from authority that in a needs case, the court can have resort to any assets, whenever acquired, in order to ensure that the parties’ needs are appropriately met’. The report cites White v White [2001] 1 AC 596 at 610 and Vaughan v Vaughan [2010] EWCA Civ 349 at [42], both of which support the invasion of non-matrimonial property to meet needs.

One could be forgiven for thinking the above references support sharing non-marital pensions to meet needs. They do. But they do not advance an immovable rule to do so. Simply extending one’s reading of paragraph 4.3 illustrates this:

‘It is important to appreciate that in needs-based cases, just as is the case with non-pension assets, the timing and source of the pension saving is not necessarily relevant – that is to say, a pension-holder cannot necessarily ring-fence pension assets if, and to the extent that, those assets were accrued prior to the marriage or following the parties’ separation.’ (original emphasis; italicised emphasis added)

This is nothing new. It is simply an appropriately concise (for a document that is by necessity 176 pages long) summary of the law of non-matrimonial property: in needs cases, the fact that some property is non-matrimonial may still result in its invasion to meet needs. It will all depend upon an analysis of need.

Is that ‘may’ justified? Surely, in a needs case non-matrimonial resources are to be invaded wholesale?

Needs are an elastic concept. The needs principle subsumes at least four of the statutory criteria: Matrimonial Causes Act 1973, s 25(2)(b) – needs, obligations and responsibilities; s 25(2)(c) – standard of living (though it is not a lodestar); s 25(2)(d) – the ages of the parties and the duration of the marriage and s 25(2)(e) – physical or mental disabilities of the parties (Charman v Charman (No 4) [2007] EWCA Civ 503). That is no different when it comes to pensions.

In addition, the provenance of the asset is also relevant to needs. Per Mostyn J in FF v KF [2017] EWHC 1093 (Fam), ‘… the source of wealth is also relevant. If, as here, it is substantially non-marital, then in my judgment it would be unfair not to weigh that factor in the balance’ (see also Mostyn J in N v F [2011] EWHC 586 (Fam), [2011] 2 FLR 533 and Peel J in WC v HC (Financial Remedies: Agreements) (Rev 1) [2022] EWFC 22).

Hence, applying first principles it is clear that, even in needs cases, it is not beyond argument that non-matrimonial pensions (or at least a proportion of them) should be ring-fenced, for example, in a short marriage with ample capital assets where a large proportion of the pension was accrued pre-marriage. It will all depend on the facts of the case and a realistic analysis of retirement need, where possible.

Note of course, that FF v KF involved assets of c. £37m, N v F involved assets of c. £9.7m and WC v HC involved assets of c. £12.5m, so the elasticity of the needs principle is in full view and practitioners should expect a savvy district judge to raise an eyebrow when comparing these cases to the more modest fare that regularly passes through FRCs.

Part 6 of PAG1 (and PAG2) is entitled ‘Dealing with pensions fairly on divorce’. It addresses most of the key issues practitioners face when pensions issues arise and remains essential reading.

Paragraph 6.9 says, ‘… there is no reason why pensions should be equalised to a greater or lesser extent than other resources … more often than not, a fair outcome will be one that – for good reason – produces an overall division of assets that is unequal’ (original emphasis).

Again, nothing new. A party is entitled to the greater of a needs-based or sharing-based award (Charman v Charman (No 4) (above)). Note, however, that in a needs case, all asset classes are to be treated under that principle. A party cannot have both a needs- and a sharing-based award.[[3]]

It is worth pausing at this point to consider what ‘unequal division of pensions’ means in practice. Where the standard request from a pensions on divorce expert (PODE) is calculations to achieve equality of income or capital on retirement, it follows that the maximum a claimant spouse can hope to receive is half of the pension pot (or income).

Is that fair when half of the pot (or income) won’t meet their retirement needs, especially in circumstances where the member-spouse is likely to recover any deficit between final order and retirement? Plainly not. On the issue of housing the court does not hesitate to award a claimant spouse more than half of the capital assets where the payer is able to borrow more against their higher earning capacity.

Conversely, if a member-spouse is able to prove the recipient spouse doesn’t need half of the pension pot, including non-marital funds, it justifies the exclusion of non-matrimonial pensions.

Therefore, it can’t be right to limit the maximum (or minimum as the case may be) pension share to only 50% of income or capital. To do so is to limit the court’s discretion under MCA 1973, s 25. Perhaps this justifies the extension of PODE calculations to address a specifically pleaded needs-in-retirement figure, where possible? In the right case, that may be a useful strategy – i.e. where the parties are imminently retiring. But that approach is not without difficulty. Disputes over what a party’s reasonable retirement need is would likely become more commonplace, increasing costs, draining court time and reducing the prospect of settlement. Cases where retirement is still some way off would inevitably result in extreme or disproportionate ‘crystal ball gazing’ which shouldn’t be encouraged.

Perhaps it simply falls on practitioners to apply MCA 1973, s 25 and the relevant case law to a given case. As Fiona Hay says:

‘Whilst the zeitgeist appears now to be “parity” at all costs, this is not the correct approach in all cases. “Parity” (which is in any case often illusory) should give way if appropriate to s 25, the over-riding objective, actuarial uncertainties, common sense, proportionality and the preservation of the asset.’

Overcoming the fear of making the ‘wrong’ decision regarding pensions, understanding that PODEs aren’t simply there to give us the answer and leaning on the discretion afforded to us by MCA 1973, s 25 is, in this author’s view, the only appropriate way forward.

In any event, and in this context, whether the fair result is a greater than equal pension share for the claimant spouse or the ring-fencing of non-marital accrual will depend on the court’s analysis of the parties’ needs.

So, it’s safe to say that PAG1, for all the good it has done for practitioners, doesn’t reinvent the wheel that is 50 years of case law and MCA 1973, s 25. Any criticism of the report for apparently suggesting fixed solutions for the varied and complex circumstances that may arise in financial remedies cases is unjustified.

So, where does W v H stand in all of this?

W v H

Whilst it has been certified as suitable for citation, it is worth remembering that W v H was a first instance decision made on the facts of the case. The relevant facts were these:

• W was 50. H was 48.
• It was a medium/long marriage of c. 17 years.
• H earned significantly more than W, who was the primary carer for the parties’ three children, none of whom had a relationship with H at the time of the hearing.
• W’s income needs were determined to be in the region of £5.6k p.a., with appropriate cloth-cutting required where necessary.
• There was very little in the way of capital assets. The main assets by far were the pensions.
• Total pensions were c. £2.37m of a mixture of defined benefit (DB) and defined contributions (DC) schemes, £2.2m of which was H’s.

On the issue of pensions, HHJ Hess addressed three issues (at [58] of his judgment):

• whether, when dividing pensions with a view to promoting equality, the court should aim for capital or income equality;
• whether, when dividing pensions with a view to promoting equality, non-matrimonial pensions should be excluded; and
• whether pensions should be disaggregated from the other assets and divided separately, rather than offset against other assets.

HHJ Hess’ observations on those points are addressed at [60]–[62], respectively.

Cash equivalent or income

In respect of division by cash equivalent or income, HHJ Hess’ first statement is ‘There is no “one size fits all” answer to this question’. He addresses the for and against arguments (also addressed in PAG1) and determines on the facts of that case (the parties’ ages, the size of DB nature of the pensions, and the relative lack of non-pension assets) that equality of income is appropriate.

No new law there then.

Ring-fencing

In the section on pension sharing in the Dictionary of Financial Remedies (Class Legal, 13th edn, 2026), the authors say this about W v H:

‘The court went on to express the view that where needs issues arise the practice adopted by some courts of discounting on a straight line basis pensions accrued prior to the marriage, in effect a way of ring-fencing pensions accrued prior to the marriage, was flawed and should not be followed.’

With respect to the authors of the Dictionary, that is perhaps an oversimplification.

HHJ Hess criticised the practice of straight-line apportionment regardless of needs issues. He noted that the authority often cited in support of that approach, H v H [1993] 2 FLR 335, was a pre-pension sharing (and pre-White) case and didn’t actually address ring-fencing as we now know it.

HHJ Hess does not, however, suggest that straight-line apportionment or, indeed, any other method of ring-fencing (e.g. the deferred pension method or cash equivalent method – see paragraph 12.1 of PAG1 and PAG2) is never appropriate. Importantly, he was not asked to consider (nor do there appear to have been calculations to support) the alternative methods.[[4]]

Ultimately, HHJ Hess’ decision not to exclude non-marital pensions was based on, say it with me, the facts of the case:

• largely DB schemes – straight-line apportionment results in unfairness when applying it to final salary schemes because the fund does not accrue in a linear way, with the later years of employment contributing more towards the scheme value ([61(vii)]);
• apportionment would result in W being unable to meet her income needs in retirement. Indeed, even complete equality of income would result in ‘a tightening of her belt into retirement’ ([63(vii)]).

Disaggregation of pensions from other assets

This element of the judgment is not controversial. Reference to Martin-Dye and PAG1’s entreaty to deal with each asset class in isolation and avoid offsetting where possible.

So, again, for all the benefit W v H gave the financial remedies community, it does not, in this author’s view, cite any new points of law. It doesn’t purport to. Nor does it purport to alter the case law on needs and non-matrimonial property. It simply applies the law as we know it to the case at hand.

PAG2

Plainly, the authors of PAG2 were aware of the issues discussed above and sought to further clarify the position in their second report in 2024.

Part 4 is suitably beefed up. Paragraph 4.3 now states that:

‘The fundamental and essential requirement for the parties and the court is to undertake a careful analysis of the relevant s25 factors (including where appropriate the parties’ respective income and needs in retirement), before considering the fairness of apportionment …’ (original emphasis)

Specific reference is made to there being no ‘one size fits all’ approach and the report reiterates the need to consider MCA 1973, s 25 and income needs in retirement. This was cited with approval by HHJ Hess in SP v AL [2024] EWFC 72 (B), continuing the pension-sharing uroboros of Hess judgments and PAG reports.

PAG2 includes a new section on short marriages (paragraphs 4.8–4.11), which reiterates the need to carefully analyse the MCA 1973, s 25 factors in any case, including short marriages. This section is seen by some as a caveat to the increased emphasis against ring-fencing non-marital pensions in needs cases.

This author disagrees with that assertion – not that any view expressed by the PAG, as persuasive as it is, would materially alter higher court authority in any event. The focus is being passed back to practitioners and the court to consider the relevant factors of a given case when considering pension solutions. As it should be. One might interpret the short marriages section as an authorial banging of the reader’s head on the table, screaming ‘APPLY SECTION 25!’. Indeed, the focus in paragraph 4.11 on relationship-generated need was specifically drafted to dissuade readers from wholesale disregarding apportionment in needs cases.

Part 6 of PAG2 has been expanded to give further guidance on the issues addressed in PAG1. In particular, more attention is drawn to the rift between capital division and income division; the former exemplified by the dissenting voices of Mostyn J,[[5]] Moor J[[6]] and Francis J[[7]] and the latter by the majority of the PAG group (see paragraph 6.24 – pursuit of equal incomes should not be regarded as ‘“the holy grail”’). A deep dive into this dispute is beyond the scope of this article (and has been eruditely addressed by the proponents of each argument far better than I can). The force of this rift is, however, arguably ameliorated by the separation of so-called ‘big money’ cases from the average workaday case that comes before most District Judges of the FRC. In most cases where the only source of income on retirement is pensions, usually smaller money cases, division by income is likely to be the correct approach. It is, however, a salutary example that even within the PAG itself there remains a difference of opinion as to how to address pensions issues.

Conclusion

When it comes to pension sharing, as with all other aspects of financial remedies law, there is no ‘one size fits all approach’. A slavish inclination towards equality of income and a failure to consider ringfencing on the one hand or unequal division in favour of the claimant spouse on the other hand detracts from the flexibility offered by MCA 1973, s 25.

The PAG reports helped to demystify pensions issues and act as an incredibly useful reference guide for busy practitioners. It bears remembering that the PAG reports simply provide practitioners with an armoury of tools to deploy in the appropriate case. They do not provide ‘The Answer’. One tool may work in many situations, but a different one may do the job more effectively: you can cut down a tree with a hammer, but an axe would do it better.

[[1]]: Note also Finch v Baker [2021] EWCA Civ 72, in which the pension sharing order was appealed – however, no substantive analysis of pension sharing law was required on the facts of that case.

[[2]]: See Summary of Citation Certificates for cases below High Court Judge level – April 2025, helpfully located on the FRJ website: https://financialremediesjournal.com/summary-of-citation-certificates-for-cases-below-high-court-judges-level-april-2025/

[[3]]: See Cusworth J’s judgment in TW v GC [2024] EWHC 949 (Fam), [43].

[[4]]: See Joe Rainer’s article, ‘Non-matrimonial pensions, the forgotten discussion’ [2020] Fam Law 95 for an incisive discussion of these methodologies and their importance for practitioners.

[[5]]: In his foreword to Fiona Hay, HHJ Hess and David Lockett, Pensions on Divorce (Sweet & Maxwell, 2nd edn, 2013).

[[6]]: In CMX v EJX [2022] EWFC 136, [49]–[50].

[[7]]: Both in his capacity as co-chair of PAG and in his judgment as a DHCJ in SJ v RA [2014] EWHC 4054 (Fam).