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Pension
sharing order
Since 1 December 2000 the Welfare Reform and Pensions Act
1999 (WRPA 99) has allowed a couple on divorce or nullity
of marriage, the option of pension
sharing and the court can grant a pension sharing order
against the members pension rights in a pension arrangement.
A pension sharing order will allow the couple on divorce a
clean break, unlike an earmarking order against retirement
benefits that will be activated at the retirement
age of the scheme member.
The pension sharing order must be issued after the decree
nisi but will only be implemented after the decree absolute
in the case of divorce or decree of nullity
as specified in the section 24B of the Matrimonial Causes
Act 1973 (MCA 73). The pension sharing order will create a
pension
debit against the retirement benefits of the scheme member
and the former spouse will receive a pension credit of the
same value.
This pension credit can be used as an internal
transfer to the existing scheme if this is permitted such
is the case with an unfunded public service scheme, and this
will create a separate pension arrangement in the name of
the former spouse. Alternatively an external
transfer will allow the pension credit to be moved to
a separate pension arrangement as chosen by the former spouse.
Pension
sharing procedures
The procedures for pension sharing are specified by subordinate
legislation through regulations and are similar to those
of earmarking. When the court makes a pension sharing order
it must send to the member with the pension rights within
7 days of granting the order or 7 days after the decree
nisi in divorce or decree of nullity. On receiving notification
of a pension sharing order the member of the pension arrangement
must within 7 days request the initial valuation and information
from the pension provider.
The provider must furnish within 21 days to the court or scheme
member information on the pension arrangement and if they
fail to provide the information they could be fined by the
occupational pensions advisory board (OPRA)
for the breach of the requirements. The provider will have
six weeks to make the valuation of the members pension rights
or accrued retirement benefits. The valuation requested will
be the cash equivalent transfer value (CETV)
and in England and Wales this will also include retirement
benefits accrued prior to the marriage.
Once the court has determined the percentage allocation to
a pension credit to the former spouse the provider of the
pension arrangement will have four months to action either
an internal transfer, which for example is the only option
for an unfunded public
service scheme, or if this option is not permitted to
make an external transfer.
Pension
sharing retirement benefits
A pension sharing order can be made against all types of occupational
pension scheme such as a final salary pension, additional
voluntary contribution (AVC)
scheme or an unfunded public service scheme.
An order can be made against a private
pension scheme such as personal pension, stakeholder pensions,
retirement annuity policies (RAPs),
buyout policy or replacement policies and the state earnings
related pension scheme (SERPS).
A pension sharing order can also be made against the value
of overseas pensions as part of the financial settlement although
offsetting may have to be considered if the legislation governing
the pension
arrangement does not allow a pension sharing option.
Excluded from the scope of pension sharing is the basic state
pension, pre 1975 contracted out equivalent pension benefits
if these are the only rights of the pension arrangement, widows
pension rights and dependents pension rights if they are
in payment. Under the Pensions on Divorce etc (Provision of
information) Regulations 2000 only the cash equivalent transfer
value (CETV) is required by the court for the valuation of
retirement benefits.
However, other methods could include past service reserve
and the fund value in order to arrive at an adjusted
CETV that reflects the circumstances and specific needs
of the parties on divorce.
As a result of the landmark case White
v White (2000) there is a strong emphasis that on divorce,
deciding on the division of matrimonial
assets and financial matters should begin with and assume
an equal share between the parties with the final determination
being expressed as a percentage of the retirement benefits
valuation.
Pension
splitting
The introduction in the Pensions Act 1995 of earmarking
was seen as inadequate by matrimonial lawyers as a members
pensions rights were earmarked at retirement age, resulting
in the couple on divorce remaining financially linked until
that date. The term pension splitting was seen as the preferred
method by campaigners for reform of the rights of the former
spouse to achieve a clean
break in divorce. Since 1 December 2000 this term has
been superseded and is known as pension sharing.
Pension
transfer
Where a scheme member wishes to change from an existing pension
scheme to a new pension scheme, a pension transfer of member
rights will facilitate this move.
During the early 1990s pension transfers became controversial
as regulation became more effective and the Financial Services
Authority (FSA)
revealed in the pensions review that a substantial number
of individuals were advised to transfer their pension rights
from final
salary pensions to personal
pensions and section 32 policies. Poor advice was given
because clients did not understand the implications of a pension
transfer or the advice given was wrong and the client suffered
financial loss.
To give advice on pension transfers from occupational pension
schemes independent
financial advisers (IFA) must be authorised by the FSA,
formally the Personal Investment Authority (PIA) and hold
a recognised qualification such as G60 Pensions or equivalent,
as per the permitted activity 13 rule specifies.
On divorce,
there must be advice given by an IFA even if the transfer
is as a result of a pension sharing order granted by the court
and where dual
membership is not permitted by the scheme rules. This
means that an internal transfer is allowed and the pension
credit to the former spouse
must then be applied as an external transfer to another pension
arrangement.
Pensioneer
trustee
A person that is authorised by the Pension Schemes Office
(PSO)
and is responsible for overseeing the management and regulation
of small self administered schemes (SSAS)
is known as a pensioneer trustee. Since 17 March 1998 a pensioner
trustee is not allowed to resign without immediate replacement
by another pensioneer trustee, except on the death of a trustee,
if removed by an order of the court, acts in a fraudulent
manner in relation to the scheme or is no longer approved
by the board.
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