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Types of pensions affected
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
arrangement that is already in payment such as through an
annuity can be subject to a pension sharing order. 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 state
basic 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.
State scheme rights
As the result of divorce or nullity
of marriage the parties can approach the National Insurance
Contributions Office (NICO) to value any state scheme rights.
Although not applicable to state basic pension, a pension sharing
order can be made against the state scheme rights in the form
of the state earnings related pension scheme. After the application
of a pension sharing order the SERPS
member will be subject to a state scheme debit and the former
spouse will be entitled to a state scheme credit of the same
amount. Where the scheme member has contracted out of SERPS,
the former spouse must be given safeguarded rights as part of
the transfer.
The provision of
safeguarded
rights has been established by section 36 of the
Welfare Reform and Pensions Act 1999 (WRPA)
inserted a new part III of the Pension Schemes Act 1993 (PSA).
This is further outlined in subordinate
legislation through the Pension Sharing (Safeguarded Rights)
Regulations 2000. The spouses pension rights derived from
the pension scheme member of a contracted out occupational
pension scheme or appropriate personal pension (APP)
must be transferred to the former spouse as safeguarded rights
and distinguished from the contracted out rights of the scheme
member.
Safeguarded rights will be financed by National
Insurance (NI) contributions and will be subject to the
same conditions that apply to post-1997 earnings relating
to contracting
out or protected rights benefits. A scheme will not be
required to offer survivors'
pension rights and benefits will not be tracked or monitored
by the contracted out employments group (COEG). This means
that the scheme trustees must keep a record of the former
spouses rights as well as details of the pension sharing order
and record the percentage of the share against the members
pension.
Internal or external transfer
After a final
hearing and the granting of a pension sharing order as
part of ancillary relief proceedings, a pension
debit will be created against the scheme member in favour
of the new spouses pension rights as the step-by-step
guide shows. Where dual membership exists,
the former spouse will be allowed to make an internal transfer
and become a member of the scheme in his or her own right.
For an unfunded public service scheme the retirement benefits
are guaranteed by statute and there are no funds to make a
pension
transfer. In this scheme only an internal transfer will
be offered to the former spouse unless it is a scheme closed
to new members in which case benefits must be transferred.
Where dual
membership is permitted the scheme trustees of an occupational
pension scheme they must decide whether the former spouse
should qualify for discretionary
benefits and distributions of any scheme surplus. Trustees
will have to make rule amendments to the scheme to deal with
all circumstances including whether the former spouse will
have the same rights as deferred members. If the former spouse
fails to indicate to the trustees how the pension
credit is to be applied, regulations will allow the trustees
to make them a member without their consent.
Where a pension
sharing order has been made and the former spouse is not
able to make an internal transfer to the members scheme because
dual membership is not permitted, an external transfer must
be applied to the pension credit. For an occupational
pension scheme that is subject to the minimum funding
requirement (MFR), the pension credit may be reduced if the
scheme is in deficit.
If the scheme is under funded the former spouse must be advised
of this by the scheme
trustees and has the choice to delay an external transfer
until the scheme returns to a fully funded position. For unfunded
public service schemes external transfers are not possible
but private unfunded unapproved retirement benefit schemes
(UURBs)
can offer an external transfer.
If the former spouse has failed to indicate how they wish
to apply the pension credit, the scheme trustees can make
an external transfer without their permission. Before an external
transfer is made, the former spouse should obtain advice,
usually from an independent
financial adviser (IFA) that is a pensions expert and
has the appropriate qualification such as G60 Pensions or
equivalent.
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