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Equalising
pension income
Background
We were approached by the solicitors representing Mrs
S and Mr S and were appointed with joint instructions
as the clients had agreed settlement during ancillary
relief proceedings. The outcome they wanted required
a pensions expert to calculate the appropriate percentage
for the pension
sharing order.
Both parties were in their late 60s, retired with retirement
benefits in payment. The objective was to have equal incomes
for both Mrs S and Mr S including all sources of income.
Pension audit
Whilst we sympathised with the parties intended outcome we felt
that some modification of our instructions was necessary to
reflect the fact that some of the pension entitlements would
increase during payment and some would remain level. Furthermore
the life expectancy of the parties was also different. Both
parties and their solicitors happily embraced this observation.
The respective gross annual pension
income for both parties were as follows (rounded to the
nearest £100):
•
Mr S
State pension
First personal pension
Second personal pension
Public service scheme
£4,100
£2,000
£6,000 £25,000
(escalating)
(level)
(level)
(escalating)
£37,100
•
Mrs S
State pension
Public service scheme
£2,400 £3,800
(escalating)
(escalating)
£6,200
The original approach to achieving the parties requirements
was to have pensions of equal aggregate amount of gross pension
income and this was considered equality for both parties. We
proposed a basis that would give each party pensions of equal
actuarial value allowing for age, gender and escalation. In
order to achieve this balance taking all the pension income
into consideration we recommended that Mr S's pension rights
within the unfunded public
service scheme should be shared in the following proportions
(rounded to the nearest percentage):
•
Mr
37%
•
Mrs
63%
Outcome
Our proposed basis was accepted by the parties and their solicitors
and ratified by the court as a pension sharing order. This process
took just over 9 weeks to complete from the time of our appointment.
During the audit
procedure and data collection stage the public service scheme
administrator acknowledged that Mr S was divorcing and confirmed
in writing that in the event of Mr S's death, his wife would
be entitled to a widows
pension of 1/3rd of Mr S's pension rights. If this information
was not interrogated for accuracy but instead taken as fact,
used as part of the valuation calculation and implemented in
the pension sharing order, it would have created a material
error, however with pension
sharing there is no opportunity for a variation of orders
at a later date.
For an unfunded public service scheme a widows pension is payable
only to the legal wife. Therefore in this case after Mr S and
Mrs S divorce
was final, Mrs S would have no entitlement to a widows pension
if Mr S died. Only if Mr S were to re-marry would his new wife
Mrs S(2) be entitled to a widows pension of 1/3rd of Mr S's
pension rights.
Under
an unfunded public service scheme there can be no pension
fund provision made for the scheme members as the
retirement benefits are guaranteed by statute. This means
that the only option for Mrs S was an internal
transfer of pension rights, in other words she was
made a member of the scheme with the same benefit entitlement
enjoyed by Mr S in terms of income escalation.
Disclaimer:
Information found on this site does not amount to financial advice or
legal advice. Every time you access the website you agree to be bound
by the Terms and Conditions.
If you do not agree to be bound by them, you should not use the sharingpensions.co.uk
website. Before taking any action regarding pensions, pension on divorce
or any other financial or legal matter you should seek professional
advice.
