When dealing with a case involving pensions on a divorce or dissolution of a civil partnership there are three potential options;
• Pension Sharing
• Pension Attachment (Earmarking)
• Pension Offsetting
Without a doubt pensions can be difficult to understand. That’s why specialist advice is needed and that will often involve a separate pension expert and involvement by an actuary.
There are a variety of different pensions which may need to be considered, to include personal pensions, final salary schemes and often executive pensions, such as SSASs (Small Self Administered Schemes). An actuary can asses the options and present a report setting out the calculations and the relevant options to assist with negotiations.
Once matters are agreed, separate advice is often needed on how to actually implement the pension share or pension attachment. It is obviously important that the relevant pension order is implemented properly and in a timely fashion. Equally, separate advice can be taken about how best to rebuild a pension following the pension share.
A pension share essentially means that a pension on divorce is shared between the parties. The pension member who loses a percentage of the pension (pension debit) and the other party receives the percentage of the pension which is subsequently transferred (pension credit). The person receiving the pension share then has his/her own entitlement to that share of the pension.
There are two options in relation the pension credit;
• An internal transfer – this means that the pension remains within the existing pension scheme; or
• An external transfer – where the pension credit has to be transferred out of the existing pension scheme and invested in a new pension of his/her choice.
A pension sharing order can only be made following a divorce and by a Court order. A pension scheme has four months to implement the pension sharing order/ annex from the date it is served with the relevant papers. In considering pension sharing, it is also important on a case by case basis to consider the other relevant options of pension attachment and offsetting.
It is also important that the pension valuation is fair and accurate and special care must be taken where the pensions are perhaps unusual in nature particularly where the benefits are undervalued or are connected to a privately run business – this is where independent actuarial input can be crucial.
This effectively means that part of the pension is paid to the other party when the pension is drawn or in payment.
A pension attachment order can be made by a Court and following a divorce. Commonly, a pension sharing order will not take effect for some time as the member of the pension scheme will not have retired. Common problems with pension attachment orders are that they end at the death of a pension member or on the remarriage of the spouse. A pension earmarking order, might be an attractive option where the death in service benefits are high and a member of the scheme is near retirement.
This basically means that the value of the pension benefits are offset against the value of other assets commonly the family home or investments. This could be appropriate where the pensions are modest, where it is the case of a short marriage and/or parties are of a young age and/or pension sharing is not a viable option, for example, because the case involves and overseas pension where sharing is not allowed.
Where there is an application for ancillary relief the applicant must indicate on Form A if this will include any pension arrangements.
A copy of this form must be sent by the person with the pension rights to the persons responsible for each pension arrangement (scheme provider or administrator) requesting the following information;
Valuation of pension rights or benefits
A cash equivalent transfer value (CETV)
Details of the benefits included in the valuation.
Whether the administrator will offer membership to the person receiving a pension credit as an internal transfer, or whether an external transfer would be necessary.
Schedule of charges which would be levied.
This information then forms part of the overall negotiations and a report may be produced by a pensions expert to aid negotiations in this regard.
Once a Pension Sharing Order is made an annex is attached for each pension arrangement which outlines the specific percentage value of the pension arrangement to be transferred as well as the date at which the benefits are to be valued and how the charges are to be apportioned between the parties.
The annex will usually require the recipient to include details of where their pension credit will be received – therefore pensions advice will be required to select the most appropriate vehicle.
The scheme provider/ administrator must discharge their liability within the period of 4 months beginning the date on which the order or provision takes effect or the first day they are in receipt of the order, including the annex.
How Brown Shipley can help;
We have pension experts who can provide advice and guidance for individuals with regards to pension matters and we also have our own pension wrapper which can accept most pension credits.
We are more than happy to discuss a situation in outline without obligation, working with the individual’s advisors and our Private Bankers to ensure an effective solution.
Brown Shipley & Co Limited is a UK authorised bank, authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. In relation to Pensions and Financial Planning Brown Shipley provides advice on a restricted basis.
Brown Shipley is also a member of the network of private banks known as KBL European Private Bankers, which, together, manage over €40 billion of client assets.