It is almost as if pension attachment has been cast aside, but there are several situations where it might be more beneficial.
You will be aware how with certain public sector schemes, such as the Armed Forces and Police, a member can receive their pension at a very early age. With pension sharing the ex-spouse will not have access to any benefit from the scheme until much later, in the case of the Armed Forces even as late as age 65. An attachment order for a pension in payment would produce income immediately.
The two disadvantages of attachment orders are that they cease on the death of the member or the remarriage of the ex-spouse. In certain circumstances, however, they can work particularly well if associated with some form of throughout-life life insurance.
An extreme example of this is the male army officer in receipt of his pension, whereby if a 50 per cent share is applied against his pension it would reduce today by half, with his ex-spouse not receiving anything until she reaches normal retirement age.
If she dies before the pension starts, he loses half his pension forever and no value is provided for. In this situation, if it is known the ex-spouse has a shortened life expectancy, some form of agreement involving pension attachment could be more appropriate.
When a pension sharing order is placed against a pension in payment – thereby reducing it immediately but only creating a pension credit for the ex-spouse payable, in some cases, many years in the future – it often causes upset.
Unfortunately, it is a consequence of the combination of both traditional pension and new pension sharing legislation. With the exception of members of the Local Government Pension Scheme, virtually all public sector pension scheme members are in this position.
A further interesting point has been clarified under the pension simplification banner, with the new legislation that came into force from 2006.
While the dictionary definition of a widow is as the surviving person from a marital relationship, the HMRC Registered Pension Scheme Manual defines it in another way. Pension schemes, and in particular annuities, are able to use the definition of a widow as the person married to the deceased at the time the contract was taken out. This was highlighted recently in a case whereby the annuity in payment, with full inflation linking, provided for a widow’s pension that would be payable to the ex-spouse even where death occurs after the divorce.
If we consider this last situation, where the widow’s pension would be payable to the ex-spouse at the full rate, with a pension share of 50 per cent he looses half and she gains half during both their lifetimes.
If he dies first, she retains her half but then as the named widow inherits his half, meaning the full pension continues to be paid to her.
If she dies first he continues only with his half. If an attachment order was put in place, during both their lifetimes they would each receive half. On his death she would receive 100 per cent widow’s pension and if she dies first he would revert to a 100 per cent pension.
Richard Jacobs is managing director of Richard Jacobs Pension & Trustee Services