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  Types of pensions affected   State scheme rights
  Internal or external transfer   
    
    

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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.

In many cases the spouse is nearing retirement and requires a pension income from either the internal or external transfer. Where this is a money purchase scheme, the spouse can use the pension fund to buy an annuity and has the option to use an open market option to search for the highest pension annuity. Once you have purchased an annuity it cannot be changed, so learn more about annuities, compare annuity rates and before making a decision at retirement, secure a personalised pension annuities quote offering guaranteed rates.

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Annuity Rates
Single
  55 £4,206  
  60 £4,699  
  65 £5,433  
  70 £5,983  
Joint
  55 £3,946  
  60 £4,438  
  65 £4,954  
  70 £5,409  
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