As a family lawyer, I am interested in the topic of pensions and divorce. As pension sharing has been in place for many years, is the process now set in stone?
If only this was right. Ignoring all the changes to pension legislation, which impacted dramatically on pension-sharing situations, we now have the very exciting collaboration process. This is taking the role of the IFA involved in matrimonial disputes to new lengths.
We have the IFA neutral, who contracts not to enter into any business transactions with either party, providing true fee-based impartial help and the IFA implementer providing the final advice.
More important with regard to pensions, things continue to change and I am afraid that a great deal of change is taking place without any publicity.
Every case is different and even where the same pension scheme is involved, we cannot rely on out-of-date information.
It is a generally accepted fact that all the public-sector unfunded pension schemes require any pension credit to remain in the scheme, with benefits not being available to the pension credit spouse until normal retirement date.
This applies even if the pension scheme member retires in their own right.
The armed forces have recently increased the age when the pension credit member can take benefits to 65. Do not promise the ex-spouse any retirement benefits earlier or you may find yourself liable.
The pension legislation is quite clear about the various dates concerning a pension-sharing order but the pension schemes themselves get into a dreadful mess. Even though we have a Pension Ombudsman ruling in Shepherd v The Trustees of the Air Products Plc Pension Plan, final-salary schemes still undertake a final cash-equivalent transfer value and benefit calculation many months after the pension-sharing order, which depending on the circumstances can severely disadvantage either of the parties.
Money-purchase schemes, particularly those with ongoing contributions, continue to undertake a final CETV and often pay an external transfer value several months after the implementation date based on the value at that time.
The true date for both money-purchase and fina-salary schemes to undertake their calculation is the transfer day, which is 21 days following the issuing of the pension-sharing order. The 21 days represent an appeal period following a decree absolute.
The ombudsman case highlighted a situation where a pension was in payment and the correct dates were followed. Unfortunately, the pension in payment continued being paid to Mr Shepherd and he subsequently had most of his pension reclaimed. The ombudsman identified that all proper procedures had taken place and that while it was regretful that the pension continued to be paid, knowing it was going to be reduced as part of a pension-sharing order, trustees of the Air Products pension plan were correct in backdating the reduction to the earlier transfer day.
A great deal of confusion still surrounds the issue of safeguarded rights.
Where benefits have built up in a pension scheme relative to contracting out of the state second pension and all those benefits in a final-salary scheme have accrued since 1997, on transfer to an ex-spouse through a pension-sharing order, they become known as safeguarded rights.
The ex-spouse has access to their own protected rights from age 50 (55 from 2010) and also has the ability to take tax-free cash from those protected rights. They have neither choice with regards to any safeguarded rights they may hold. Safeguarded rights are not payable until age 60 and there is no ability to take tax-free cash relative to safeguarded rights. Confusion reigns because one insurance company, Legal & General, insists that such benefits are payable. In another case, a particular insurance company’s own final-salary scheme allows the ex-spouse to remain as a pension credit member in the pension scheme but transfers the benefit to a money-purchase section away from the final-salary section. Again, this can have a dramatic effect on the benefits expected from such an arrangement and may not be in the ex-spouse’s interest.
Pension sharing has been with us for several years but we are finding cases becoming more complex, due particularly to the many options available and the fact that the same scheme can change its position over time. Watch out for more public-sector schemes increasing the age when a pension credit member can take benefits.