I am divorcing my husband. I have no pension but he has an old pension with BT and a current one as a teacher. If we share the pensions what are my options?
If you decide to pension-share, you will need expert advice as to the amount of share that is required to equalise your benefits. The situation is very complicated.
With pension-sharing, the legislation is quite clear that it allows your husband’s pension scheme to decide how to treat your benefits if they receive a pension-sharing order. Your husband’s scheme can decide whether you must become a member of your husband’s scheme, you must move out of the scheme or leave the decision to you. If you and your husband make the wrong decision, it can seriously affect the income of both of you in retirement.
There are two simple approaches to sharing pension.
The first is to share the capital value, known as the cash-equivalent transfer value, of the pension between you. In this case, a 50 per cent share of both of your husband’s pensions would, on the face of it, provide equality.
You are the same age as your husband but, being a woman, you can be expected to live longer and therefore the pension you receive for a given amount of money is less than that for your husband with a shorter life expectancy.
So while an equal share of the capital can be considered fair in one way, it will not provide you with the same income.
A more important issue is that the teachers’ pension scheme insists that any pension credit created for you must stay in the scheme while BT insists that you must transfer your pension out.
As you must transfer out any pension share from BT, it will move into a personal pension in your name and you will then have to buy a pension on the open market.
Purchasing pensions on the open market is considerably more expensive than the benefits available to your husband from BT.
We therefore end up in the awkward situation that to equalise income in payment a significantly higher share, as much as 65 per cent, would be needed in the BT scheme to enable you to buy the more expensive pension on the open market that equates to your husband’s significantly reduced BT pension.
Again, while mathematically this is fair, it does disadvantage you both. A more appropriate approach to this situation which provides the greatest benefit for both you and your husband in retirement would be to use only the teacher’s pension to create your share, with your husband retaining all his BT pension.
There are issues about the security of the BT scheme compared with the teacher’s pension that would need to be addressed but by undertaking the calculations in this way, an equalised income can be generated in retirement, maximising the amount available to both of you without the need to use the very expensive open market route.
Pension-sharing can also be expensive to implement, so the fewer shares issued the lower the cost.
Richard Jacobs is managing director of Richard Jacobs Pension and Trustee Services