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Admin crisis on pension sharing

IFAs are struggling to find product providers which offer a complete service for taking on pension funds split by a divorce 18 months after pension-sharing legislation was introduced.

Pension sharing allows a pension fund to be split in the event of divorce. The divorced spouse gets a credit which can be moved elsewhere.

Friends Provident, Scot-tish Equitable, Standard Life and Scottish Widows all accept pension credits into personal pensions and their stakeholder plans but do not accept credits for section 32s.

Standard Life senior technical manager John Lawson says: “We do not accept section 32s because there are too many questions around the value of protected rights. There is a lot of dubiety over the rate they should be valued at.”

Legal & General, however, offers a section 32 buyout plan for pension credit but will only accept a credit into a personal pension if it is into an existing stakeholder plan.

Pensions marketing dir-ector Andy Agar says: “The new regulations needed a lot of systems work and we had to decide our priorities. The effects of the regulations were, strictly speaking, to accept a pension credit only for existing members of our stakeholder scheme. Setting up a brand new stakeholder plan will require a lot more systems work.”

IFAs trying to place pension credits say they are struggling to find a prov-ider which can offer them a full range of options and it could mean that prov-iders miss out on big chunks of business.

Richard Jacobs Pension & Trustee Services director Richard Jacobs says: “This legislation goes back to December 2000 and it is nonsense that these companies are not ready for it. The whole things is a bit of a mess.”

Scottish Life and Cler-ical Medical can accept pension credit transfers into all their schemes. Norwich Union can only accept pension credits into its stakeholder but is looking at expanding credits to section 32 and its personal pension range.

Head of individual pensions Ian Buckle says: “We changed our stakeholder scheme rules to allow them to accept pension credits. It is not a trivial matter. You have to make system changes to accept a different contribution type.”

Syndaxi Financial Plan-ning principal Robert Reid says: “It is a bit hit and miss finding a provider to take on what you want. It is not very straightforward. A lot of the problems are systems-led.”

Many divorcing couples decide the easiest way to settle the pension issue is to offset it against other assets. Pension sharing usually occurs when a big fund is involved, meaning IFAs are often dealing with considerable sums.

L&G says most people sharing their pension choose a section 32. It says these are more flexible in that they can be transferred into a personal pension or stakeholder at a later date.

But Reid says: “Not too many section 32s are on 1 per cent. You always have to look at stakeholder or the regulator will be asking you questions. Even if you switch, you will be picking up extra charges every time.”

Providers say not enough business has come through their doors to justify the systems changes needed.

But many IFAs are exp-ecting this to improve. Many divorce petitions are now coming to the fore as cases often take up to 18 months to progress.

Jacobs says he has handled around £1m in pension credits from divorce cases in the past year and therefore providers are going to miss out unless they bring their systems up to scratch.

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