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The
main purpose of pension sharing on UK divorce is
to allow the members pension rights to be treated
in the same way as the other matrimonial assets
so that the spouse with no pension provision can
now plan for their retirement.
For a couple on divorce and nullity
involved in ancillary
relief the principles are set out in
section 25 of the Matrimonial
Causes Act 1973 (MCA
73). |
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This gives the court the power
to resolve the matrimonial property and financial
matters including the value of retirement benefits
of any pension
arrangements held between the parties where
possible.
Before pension sharing, the only
solution for the division of the pension arrangements
was by offsetting
against other matrimonial assets held between
the couple on divorce. The courts are directed
to have regard to all the circumstances of the
case and to seek a clean break between the parties.
The MCA 73 has been amended to reflect the need
of the former spouse to secure members
pension rights on divorce, nullity or judicial
separation, however pension sharing will only
be possible on divorce and nullity of marriage.
Section 166 of the Pensions
Act 1995 introduced earmarking and inserted sections
25B to 25D of the MCA 73. Earmarking provisions
have not been used in England and Wales as it
does not allow for a clean break of the retirement
benefits. Matrimonial lawyers realised the
limitations of earmarking and an enabling clause
within section 16 of the Family Law Act 1996 (FLA
96) allowed for the concept of pension
splitting.
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New legislation
Further attempts to allow a clean
break for a couple on divorce and achieve a fair division
of the pension arrangements brought in by Welfare Reform and
Pensions Act 1999 (WRPA). The Matrimonial Causes Act 1973
has been further amended by sections 19 and 21 of the WRPA
that introduced pension sharing as well as making some improvements
to earmarking.
The WRPA received
Royal Assent on 11 November 1999 and applies to a members
pension rights in divorce and nullity of marriage but not
judicial
separation and is a legally enforceable settlement from
the 1 December 2000. From this date pension sharing allows
occupational pension schemes such as final salary pensions,
personal
pension, stakeholder pensions and the state earnings related
pension scheme (SERPS) to be divided between the parties.
However, pension sharing will not apply to the state basic
pension.
Achieving a clean break
Pension sharing allows the members rights to be divided between
the parties so that a proportion, or the whole, of the retirement
benefits can now be transferred from one spouse to the other
as a final settlement of the financial matters.
The rights created by pension sharing as
a result of an internal
transfer or an external
transfer will belong to the former spouse and there will
be no dependence on the partner, as in the case of an earmarking
order, resulting in a clean break of the financial matters.
Pension sharing is only available to married couples and is
not available to cohabiting couples applying to divorce
and nullity of marriage only, unlike earmarking that includes
divorce, nullity
and judicial separation.
Pension sharing is not compulsory and it
will still be possible for couples on divorce to select earmarking
or offsetting as options where appropriate. Part III of the
Welfare Reform and Pensions Act 1999 contains the new pension
sharing framework that amends existing family law, specifically
section 19 amends the Matrimonial Causes Act 1973 and allows
the court in England and Wales to make a pension sharing order.
Part IV deals with how pension sharing is effected and the
result in relation to the pension arrangement and SERPS.
Although the MCA 73 contains the primary pension sharing legislation
the detailed working of pension sharing can be found in subordinate
legislation and implemented through statutory instruments.
Here specific regulations for pension sharing detail the procedures,
as in the step-by-step
guide, to be followed for the provision
of information, charging, calculation of the cash equivalent
transfer value (CETV), creating a pension
credit, producing a pension
debit and procedures for a pension sharing order. Finally,
the WRPA 99 repealed section 16 of the FLA 96 that introduced
the concept of pension splitting.
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