There are no final salary occupational schemes, so we will not have to investigate the guarantees such schemes offer. Your client is not in employment and therefore does not have access herself to any form of company pension scheme or company stakeholder pension.
The issuing of a pension sharing order will create pension debits against the existing pensions for the benefit of your client in whatever portions are agreed. It is also possible to share one, but not another. An example of this is the self-invested personal pension. Whatever split is agreed, you could apply the debit or credit against this one at a higher proportion, leaving the other policies untouched.
With the Sipp, your client should not be in any way disadvantaged in requesting her pension credit to be moved into a personal pension plan of her own choice, whether insured or self-invested.
This new PPP is an entirely new contract owned by your client for her to use in whatever way she chooses with regards to tax-free cash, purchasing an annuity or using pension fund income drawdown.
The old retirement annuity, however, produces two additional problems. It is understood that the Inland Revenue has stipulated that all pension credits in a retirement annuity must be transferred to a new PPP as it no longer possible to set up a new retirement annuity plan.
Ordinarily this might not cause a problem, however, Friends Provident have announced plans to demutualise and your client's ex-spouse will have been informed recently to expect shares in lieu of membership rights.
It might well be that your client's ex-spouse will put you under pressure not to share any of the Friends Provident policy. Certainly the value of the demutualisation bonus, which is as yet unknown, must also be included in the financial settlement.
Pension sharing also includes contracted-out PPP. However, you must be aware that these policies can only be used to produce an income from age 60 with no ability to take tax free cash.
If I were acting for your client's ex-spouse, I would be looking to offer all of the contracted-out PPP and whatever value from the Sipp that could be agreed.
My own recommendation for ease of simplicity would be to say there is £362,000 worth of pension assets. Agree the split in whatever proportions, say 50/50, and therefore apply a pension sharing order against the Sipp for £181,000.
With this pension credit I would suggest your client arranges for it to be moved into a PPP – either insured or self-invested.
Having taken this step, you must ensure that the potential Friends Provident demutualisation bonus is also taken into account in the overall financial settlement.
My advice would change completely if your client were earning, particularly a high earner, and also if in some form of final salary/occupational scheme. I would offer different advice again if other forms of occupational pensions were involved, as we would have to look closely at the tax free cash situation.
And if I were acting for your clients ex-spouse, my advice again might be different, as there are several advantages and disadvantages in the way that pension-sharing orders are implemented, particularly with regards to the future funding of pensions and the taking of tax-free cash. Finally, do not forget to take account of all state scheme pension rights, not just contracted out Personal Pensions. Use DSS form BR20 for a valuation.