Pensions & Divorce

The UK Pensions and Divorce Act 1995. Family law courts have no jurisdiction over pension schemes. Although pension rights were taken into account, then courts had direct jurisdiction to make orders against pension scheme trustees and members. The 1995 legislation allowed for orders to be made to split pension rights on divorce.

Under the 1995 legislation, courts may earmark pension benefits to pay out maintenance or a capital sum for an ex-spouse.

The court must have regard to pension benefits that either party is likely to have or stands to lose the opportunity to acquire because of divorce. Courts may make orders against the person who is responsible for the payment arrangements, such as trustees.

The payment of financial provision from the member scheme when the benefits fall due to the member, the court may direct the member as to the extent to which he may commit payments into cash. It may direct trustees to exercise discretionary powers in the event of the death of a member in favor of an ex-spouse, in whole or in part, while the member is in the power to nominate.

The order may be by way of a deferred periodical payments order or a lump sum order. The pension benefits remain the same and are attributed to the member or are split. The amount due to the ex-spouse’s percentage of the relevant pension element, this can include guaranteed minimum pension and others.

The orders may be made against occupational pension schemes, personal pension schemes, annuities, insurance policies, retirement annuity contracts, etc. Regulations provide for the valuation of benefits for earmarking purposes in the case of active or referred members of occupational pension schemes, when there is a personal pension scheme and persons with rights under RIC. The statutory cash equivalent on the transfer basis is applied. In other cases, the value is calculated in accordance with other regulations.

Provision is made for the transfer of the effect of the orders on the transfer of benefits to new schemes. Persons available for transferring arrangements are to give notice to the persons in the recipient scheme. The expiry of the particulars in the date of transfer. The notices are binding. The notices are given to the relevant parties to particulars of the orders. Provision is made for parties responsible for ensuring that the order is given effect and the transferred scheme.

Notice must be given to the ex-spouse with particulars of the transfers, transferring scheme, etc. Notice is given to the person responsible for the new arrangement with particulars of the orders made splitting the pension and particulars of the ex-spouse.

A notice must be given by the person responsible for the arrangement to the ex-spouse within 14 days of the current odd event when it is likely that there would be a significant reduction in benefits payable under the scheme in respect of the member or partial returns of the members, including benefits have been made. He must specify the nature of the event and the extent of protection and benefits.

An ex-spouse must give notice within 14 days for particulars applicable. These need to be accurate; this may include the ex-spouse’s remarriage entering a civil partnership or the order otherwise ceases to have effect. The person making payments is discharged of liability to the extent there is any inaccuracy in particulars applied by the ex-spouse or the ex-spouse fails to give the requisite notices.

The court may require a member to commute his pension when he retires with part or all of the lump sum being paid to the ex-spouse in relation to benefits on death. The court may order the allocation of a lump sum even if it’s discretionary lump sums. The orders must express the amounts due.

The order must express the amounts due to the ex-spouse’s percentage of the total amount. It may also provide for payments to increase annually and may vary under rates in the scheme.

Pension trustees may require charges in connection with administration expenses connected with earmarking orders, mails of charge in respect of the provision of the basic value information plus providing other information.

Regulations provide for information to be disclosed on request. There are also ongoing information obligations on the trustees, but once an earmarking order is made, certain information is to be provided to the member and ex-spouse, including a list of changes of which the member or ex-spouse must notify the person responsible for the pension arrangement.

Where the pension is in payment, the value of the rights and rights are subject to the order, and the amount of charges remain unpaid in respect of complying with the order, information on how charges will be made and recovered.

Pension sharing was introduced in 1999. It follows a clean approach. It provides for the division of the capital value of the pension scheme. The member’s right to reduce where pension debit and the ex-spouse’s right are by way of pension credit the same amount.

In contrast to earmarking rights, are independent and continue beyond the death of the member and indeed the ex-spouse’s remarriage. A pension sharing order may not be made more than once in respect of the same pension order, nor may it be made if there are earmarking orders already in place.

The court order is a shareable right of the members to be shared for the benefit of the ex-spouse and specifies the value to be transferred as a percentage of total rights. Shareable rights are rights under the pension arrangement other than non-shareable rights. There are limited categories of non-shareable rights, principally in the public sector.

Once the pension sharing order takes effect, the person responsible for the pension is to give effect to the pension. A pension debit reduces the member’s current and future benefits. Each part of the benefit is reduced equally.

The ex-spouse becomes entitled to the corresponding credit in the same proportions. The arrangement may discharge as a liability for the pension credit by granting rights by way of internal transfer or by transferring to another scheme.

The person responsible generally has a period of four months in which to give effect to the arrangement from the receipt of the order. If it is not implemented in this period, he must notify the regulator who may impose civil penalties.

There are provisions in respect of the discharge of the pension credit obligation this may be done conferring rights under the scheme or by external transfer.

The pension sharing order applies to the cash equivalent of the member’s benefit. They are calculated on evaluation day, which is the day after the implementation, as the person responsible for the arrangement may specify by notice in writing to the member or an ex-spouse.

Regulations may be made imposing the requirements on persons responsible for pension arrangements to supply information to the persons in connection with the power, provide financial reliefs under matrimonial legislation. The person responsible for the arrangement must, on the request of a scheme member or spouse, or pursuant to an order of the court, ensure the following information is provided:

• Valuation of the pension rights and benefits; Statements summarizing the way in which the valuation that has been calculated
• Statement of benefits included in the valuation Where the statement as to whether the person responsible for the arrangement intends to offer membership of the scheme to a person entitled to a pension credit Statement as to whether the person responsible intends to discharge the liability for a pension credit by external transfer schedule of charge is to be levied Other additional information.

The member or court only can require the valuation of accrued benefits, it must be provided within three months or within six weeks of the request of the member has notified that it is required in connection with financial relief and divorce proceedings or within a shorter period as ordered by the court.

Certain information must be provided within 21 days of notification of a pension sharing order or provision may be made. Other information is required before the implementation period begins, including information in particular regarding the expose.

There is provision for persons responsible for pension arrangements to recover pension sharing costs. They are not recoverable unless the persons have been informed that the intention to recover and given a schedule of costs, charges must be for reasonable administration expenses incurred in connection with implementation of the pension sharing order and provision of information, etc.

The same principles apply in respect of civil partnerships after 5th December 2005. Consequential changes were made in the relevant legislation to give equivalent effect.