£25 Actuarial Report values a defined benefit scheme. It takes only 10 minutes online and gives you a 5-page report signed off by an accreted actuary click here
Pension values 30% greater than the CETV.
On divorce find out if the provider quote values the pensions fairly. Start here by comparing some valuation examples
1) Can earmarking be achieved without
going to court?
It is not possible to for a couple during divorce
to use earmarking without going to court. With other matrimonial
assets such as the family home the rights can be transferred
to one spouse or the other as agreed between the parties
and recorded through their solicitors without going to
court. However, to divide retirement benefits there must
be a court
order and this includes both earmarking and pension
sharing.
In the case of an earmarking order the provider must make
a special provision to record the earmarking attachment
as this will not be implemented until the scheme members
retirement age. The court proceedings shown in the step-by-step
guide do not have to be contested so the parties can
come to an agreement through their solicitors but they
will require a financial order from the court to implement
their wishes, this usually being completed at the first
appointment or financial dispute resolution (FDR)
stages during ancillary relief proceedings.
2) What retirement benefits can be earmarked?
An earmarking order can be applied to the pension income,
tax free lump sum or lump sum death benefits that are
part of the members pension rights. For example, an earmarking
order paying a former spouse 45% of the members pension
income would be applied when the husband decided to retire,
although she would not receive the benefits if he dies
or she remarries. The court could decide that a percentage,
say 70%, of the tax free lump sum would be appropriate.
Therefore the former spouse could receive 70% of the members
tax
free lump sum when the husband decides to retire and
this would be paid even if she remarries. Where the former
spouse receives maintenance payments, the court could
decide to protect this income on the husbands death and
apply an earmarking order of 100% against the lump sum
death benefit. In this case the court can override the
scheme
trustees discretion for the payment of lump sum death
benefits to beneficiaries.
3) Where do the pension benefits come from?
An earmarking order will secure pension benefits for the
former spouse from the members
pension rights at the time of divorce but these benefits
will not be implemented until the scheme member chooses
to retire. Also, the pension arrangement itself will determine
the type of benefits that can be offered to the former
spouse.
For example, a defined benefit occupational pension scheme
can offer a pension income, tax free lump sum and lump
sum death benefit whereas private
pensions such as stakeholder pensions will only provide
a pension income and tax free lump sum. The pension benefits
eventually paid will depend on the benefits accrued up
to the divorce and continued contributions made. This
means the scheme member can stop contributing to the earmarked
scheme and starts contributing to a new scheme resulting
in reduced benefits to the former spouse.
4) Is pension sharing and earmarking possible?
It will not be possible to apply an earmarking
order where a pension sharing order already applies
to a pension arrangement for an existing marriage, as
stated in the Matrimonial Causes Act 1973 (MCA
73). In this case the former spouse will not be in
a position to apply for an earmarking order against the
lump sum death benefit to protect any maintenance payments
in the event of the scheme members death.
This restriction only applies to the pension
sharing order relating to an existing marriage so
it would be possible to apply an earmarking order to a
previous marriage that was subject to a pension sharing
order. For example, if on the husbands first divorce there
was a pension sharing order applied by the court against
a final
salary pension, then his second wife could apply for
an earmarking order against the tax free lump sum at the
husbands retirement age.
5) When will the pension be paid to the former spouse?
There is no specific date for which the pension benefits
from an earmarking order must be paid to the former spouse.
This is because the scheme member can choose when to retire
and take the benefits. For a defined benefit scheme there
will be a designated normal
pension age (NPA) specified by the scheme but it is
possible for the member to defer taking the pension income
and tax free lump sum until a later age with agreement
from the scheme trustees.
Also, for a money
purchase scheme such as a personal pension the member
can take the benefits at any time between the ages 50
to 75. This means that the partner can deliberately avoid
taking benefits until age 75, when it is a statutory requirement
for the scheme member to take a compulsory
purchase annuity, therefore deprive the former spouse
receiving earlier pension benefits.
6) Can an earmarking order be varied?
Unlike a pension sharing order where no variation is possible
after the decree
absolute is granted, an earmarking order can be varied
in the future. The former spouse can apply to the court
for a variation
of settlement order against the members pension rights
if circumstances change over time.
This could result in the court deciding to vary the percentage
allocation of existing benefits or changing benefits altogether
depending on the need for a pension income, tax free lump
sum or lump sum death benefits.
7) How is the value of benefits expressed?
Recent amendments to the MCA 73 by the Welfare Reform
and Pensions Act 1999 (WRPA
99) has meant that from 1 December 2000 all earmarking
orders must be expressed as a percentage. For example,
with a pension income in payment the former spouse will
receive a percentage of this payment as specified in the
earmarking order.
This would also apply where the courts require a percentage
of the tax free lump sum or lump
sum death benefits. It may be that the former spouse
has come to an agreement through her solicitor as to an
amount rather than percentage, nevertheless this amount
would be reflected as a percentage in the pension sharing
order.
8) Is expert evidence necessary for earmarking?
For earmarking the court must have information regarding
the benefits to the former spouse at retirement age so
the cash equivalent transfer value (CETV) showing the
value of retirement benefits assuming members are leaving
service today, are of little use. This was the view
of the court in the case of T v T (1998) where the court
determined that earmarking of the CETV
Method would have been of no assistance.
As earmarking orders can be varied in the future, it is
important for the court, as is shown in the step-by-step
guide, to obtain expert
evidence today at a cost that can be justified given
the complexity, value and significance of the benefits
relative to other matrimonial assets. The court may decide
that there is no need for actuarial evidence and that
projections from the provider or an independent
financial adviser (IFA) that is qualified as a pensions
expert will be satisfactory in the majority of cases.
Although the CETV from the provider would be used as a
basis of the valuation, it is possible to produce a suitably
adjusted
CETV that reflects the circumstances and specific
needs of the parties on divorce.
9) Are there consequences if the scheme member remarries
or dies?
There will be no consequences for the former spouse if
the scheme member remarries. However, if the scheme member
dies then any benefits due to the former spouse at the
normal retirement
age will be lost, as the earmarking order will be
automatically lapsed by the court. This applies even if
the pension income payments to the former spouse have
already started after the scheme members retirement.
If the earmarking order is made against the tax free lump
sum and this money is actually paid after retirement,
then the death of the member will have no consequences
and the former spouse can keep this money. If there is
an earmarking order against the lump sum death benefits
and the member dies prior to retirement, then the former
spouse will receive this money.
10) Are there consequences if the former spouse remarries
or dies?
Where there is an earmarking order against a scheme members
pension
income, tax free lump sum or lump sum death benefits
and the former spouse remarries then any benefits due
at normal retirement age will be lost. This is because
the earmarking order will be automatically lapsed by the
court.
As a result the former spouse will be encouraged not to
remarry but rather to cohabit in which case under UK legislation
she has no rights to ancillary
relief as the court only has jurisdiction where the
parties are married. The earmarking order will lapse on
the death of the former spouse from which time the scheme
member will retain the retirement
benefits.
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If you do not agree to be bound by them, you should not use the sharingpensions.co.uk
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or any other financial or legal matter you should seek professional
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