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Guidance Notes on Instruction Letters

I have written these notes to help family solicitors put together instruction letters - particularly identifying issues which in our experience can cause delays, added costs, and other problems. They are comments from my viewpoint as an actuary experienced in divorce cases, building on having worked closely with the experienced pensions and divorce solicitors of Penfam.

Instruction letters are normally in six sections: (1) introductory details of the solicitors, clients, and court involved, and the general nature of the instructions (joint, etc); (2) the current stage of the process, court orders, timetable; (3) Information about the clients and their pensions; (4) the questions which the expert report is to address; (5) fees and terms of business matters; and (6) compliance, CPR Part 35, best practice guidance matters. Please note that we are happy to discuss cases, and draft instructions, in advance of the instruction letter – since that can often help to make the whole report process more effective (including minimising costs both for ourselves and for solicitors and their clients).

Introductory Details: This is normally straightforward, but it is helpful to have email contacts as well as postal addresses and telephone numbers, and also the court and case reference if available. Our most usual instructions are on a single joint expert basis, but we can if requested report as a sole expert.

Current Stage: It is always helpful to have as much information as is possible on the timescales involved, and particularly on the terms of any court orders involved. If initial advice is needed, it could be that a formal CPR Part 35 report is not needed at this stage – although we are always able to write up such advice into a formal report quite quickly (at low extra cost) if needed.

Information about the pensions: This can be very complicated, and involve substantial delays if further information needs to be obtained. We always need the dates of birth of the parties, and dates of marriage, separation, etc if relevant to the questions being asked – if we are not provided with information on the parties’ health, we would normally assume both have normal life expectancy.

Pension information for money-purchase schemes, including personal pensions and SIPPs, is normally a recent fund value, and if possible a recent investment statement showing the specific funds in which the money is invested. Some money-purchase schemes have valuable benefits such as annuity rate guarantees (typically provided in “retirement annuity policies” started in the 1980s or earlier).

Pension information for final-salary schemes, either for current employment of for preserved benefits from earlier employments, is more complex. It starts from the CETV which has normally been obtained quite recently (for Form E), which will normally be provided in a letter setting out how it has been calculated (mentioning, for example, if it has been reduced on account of a fund deficit), but we need further information on the preserved benefits themselves (annual pension, retirement age, pensions increase provisions, etc) and on pension sharing options which are typically provided in standardised form by the scheme administrators if the parties told them at the time they requested the CETV that they needed information for the purposes of considering options on divorce. Particularly where we are asked for calculations of pension sharing for equality at retirement ages different from the pension scheme’s normal retirement age, we need information on the early and late retirement terms of the scheme.

State pension information (if we are to be asked for calculations including these) includes normally both the state pension estimate (BR19) and also the value of the additional pension (BR20) which are most easily obtained by the parties’ directly from the Pensions Service.

We are happy to be sent the information currently available on the various pensions with the instruction letter (or draft instruction letter), which we will review and identify whether or not further information is needed. Where this needs to be obtained on any pension, we should be provided with letters of authority from the party concerned to enable us to obtain this.

The Questions for the Expert: This is the key section of the instruction letter, and needs to be as clear as possible in order to avoid later problems. Our usual instruction is for pension sharing calculations to achieve equality of income in retirement for the two parties, taking account of pensions accrued at the report date. It is important to be clear on the definition of retirement – for example, by specifying a calendar date (perhaps when the husband reaches age 65) or by specifying the ages of retirement (perhaps age 65 for the husband, and age 60 for the wife, which might for example be the normal retirement ages in their current employments). We will normally carry out our calculations in inflation-adjusted terms where retirement is at different calendar dates, and by adjusting pensions with different provisions for increases in payment to actuarial equivalent amounts.

We can be asked for calculations of the parties’ retirement incomes from specific pension sharing, for example from sharing to equalise CETVs or current fair actuarial capital value. We can be asked for calculations excluding pensions accrued in particular periods (such as pre-marriage, or post-separation), or for calculations including future accrual, and this needs to be specified clearly in our instructions.

We can be asked to comment on the merits and disadvantages of sharing the various pensions, and to advise on the sharing likely to be most effective – this can be important since some pensions have very unfavourable sharing terms (for example retirement annuities with valuable annuity rate guarantees, or final salary preserved pensions where the CETV is substantially below fair value, perhaps because of a fund deficit), and others can have very favourable terms.

We can be asked to advise on “Offset” asset values if pensions are not shared, where we are not normally able to give a single appropriate value, but will provide a range of values and a commentary to enable the parties to discuss the many issues involved in this.

Fees and Terms of business: We are happy to provide firm fee estimates in advance if you tell us about the pensions and the questions (or if we are sent instructions in draft). Our terms of business follow the Academy of Experts model (on their website), together with our current partner hourly charge rate. If instructing solicitors wish their clients to be fully responsible for the fees, we normally ask for fees to be settled at the time of the instruction, otherwise we normally send out our fee invoices when the report is issued.

Compliance: This normally specifies that the report should follow CPR Part 35 requirements for expert reports – where our report will include the appropriate declarations.

Notes by:         Geoffrey Wilson , Partner, Excalibur Actuaries

40 The Avenue, Tadworth, Surrey KT20  5AT

Tel: 01737-819808, email gwilson@excaliburactuaries.co.uk

September 2010