Since the early 1970’s the Courts have been required to take into account the value of any pension held by both parties to a divorce in determining their financial settlement. However, before the introduction of pension sharing, it was not possible to transfer either the value of the pension benefit or the benefits themselves from the scheme member who owned the benefits to another person.
The Welfare Reform and Pensions Act 1999 introduced pension sharing as an option available for divorce cases where proceedings were lodged on or after the 1st December 2000.
One of the main benefits of pension sharing is that it should help to achieve a clean break settlement for the divorcing couple. It aims to provide a secure income in retirement for the former spouse and enable both parties to become financially independent of each other. It allows pension benefits to be treated like any other asset and allows a proportion or the whole of the value to be transferred from the scheme member to the former spouse. Payment of the pension will be direct to the former spouse and will not be affected by changes after the divorce to the circumstances of the scheme member.
Pension sharing results in the physical and legal, transfer of pension benefits from one party to another. Once the sharing arrangement has been completed it is permanent and cannot be undone. This means that all parties involved should ensure that them and former spouse are aware of the likely outcome and take independent advice where necessary.
Pension sharing is just one option available to the Court when dealing with pensions. The options include:
- No Order: the Court can decide that no settlement is required e.g. this may be the case where both parties have similar pensions provision in their own right.
- Offsetting: this is the reallocation of other property or assets e.g. the value of your pension rights can be offset against other assets such as the equity in the family home.
- Attachment and Earmarking Orders: the former spouse or civil partner receives payment from your pension either as a lump sum or by periodical payments.
- Pension Sharing: a share of the value of the Armed Forces Pension is transferred to the former spouse or civil partner who will become a member of the pension scheme in their own right and will be known as a pension credit member.
The first thing that the member needs to do when considering their pension benefits in their divorce/dissolution is to request in writing to Veterans UK a valuation of their shareable pension benefits, Cash Equivalent Transfer Value (CETV) and a pension scheme. You should complete a divorce/dissolution form (AFPS/Divorce/2), request for assessment of pension scheme benefits or Cash Equivalent Transfer Valuation for divorce/dissolution proceedings, see Veterans UK pension forms (https://www.gov.uk/government/publications/service-personal-and-veterans-agency-spva-pensons-forms) and send to Veterans UK at:
Pensions on Divorce Section, Mail Point 480, Kentigern House, 65 Brown Street, Glasgow, G2 8EX
If a Pension Sharing Order is considered appropriate the Court will decide how the value, this is normally a percentage, should be apportioned. Once the Order is made the scheme administrators will revalue the members pension benefit and implement the Pension Sharing Order within a four-month period, which begins with the day on which Veterans UK has received the entire relevant pension sharing documentation including any payment of any administrative charges, or on the date that the Pension Sharing Order takes effect, whichever is the later. This is known as the implementation period; it is within this period that the scheme administrators will select a date on which the member’s shareable pension benefits are revalued and this is known as Valuation Day. Once the valuation has been carried out the member’s pension will be reduced by the value of the shareable pension benefits (the percentage ordered by the Court). The amount of the member’s pension remaining to the member is known as a pension debit and the member will be known as a Pension Debit Member (PDM).
By applying the percentage set by the Court Order to the value of the pension benefit on the Valuation Day, Veterans UK calculate the pension credit and must give benefits to the former spouse/civil partner. The amount of the member’s pension is transferred to the former spouse or civil partner will be known as the pension credit and the former spouse or civil partner will be known as the Pension Credit Member (PCM).
It should be noted that the earliest age the former spouse or former civil partner can claim their pension is aged 60 or 65 depending on the rules of the scheme. PCM’s may now claim their benefits at the age of 55 or current age if over 55, rather than 60 or 65, but their benefits will be adjusted for early payment. They can write to Veterans UK (Glasgow) requesting a pension forecast of how much their pension will be worth following adjustment if they were to draw it from age 55 (or older if they are already over the age of 55). If they are content with the figures, they can request Veterans UK (Glasgow) to pay at an earlier age.
The details of the charges relating to pensions on divorce/dissolution within the Veterans UK charging regime see AFPS pensions on divorce charging regime https://www.gov.uk/government/uplaods/system/uploads/attachment_date/file/374768/20141105-PSOD_Charing_regime.pdf.
Caroline Ryan Consultant Solicitor at Tozers Solicitors has extensive experience in dealing with pensions on divorce. When necessary she will advise in relation to an Actuary to calculate the effect of the Pension Sharing Order in respect of benefits.
Call us on 01392 207020 for more information.