TECHNICAL TALK
The legislation does not cover other areas of matrimonial law , such as financial provision or pension sharing . Financial provision on divorce is handled in separate proceedings and the Court has wide discretion to decide on the provision for future financial needs . In the SimplyBiz Pensions Technical team we ’ ve also often commented that , whilst the majority of divorce cases begin with the intention to keep things harmonious and straightforward , they definitely don ’ t end up that way ! As you may have seen , we recently worked with Prudential on a pensions and divorce guide for members , and wanted to use this article to highlight some of the most common questions raised by advisers in this area and addressed in the guide .
How are pensions valued on divorce ? Les Cameron , Head of M & G Wealth Technical team : This depends on where the divorce is taking place , e . g . in Scotland , a pension is viewed in the same way as any other investment . Basically £ 1 in a pension is valued in the same way as £ 1 in an ISA . There is no factoring in of the eventual tax treatment when benefits are taken ( i . e . usually only 25 % of a pension is tax free , whereas an ISA is entirely tax free ). Further to this , when the pension can be accessed is not factored in , so for divorces where one ( or both ) parties are below minimum pension age , the £ 1 for £ 1 valuation may create issues .
In England , Wales and Northern Ireland , pensions are not valued as any other investment , so the solicitors dealing with the divorce may need to engage the services of an actuary to determine the value of the pension rights in today ’ s terms for the divorce .
Keeley Paddon , Head of Pensions Technical , SimplyBiz : The regulation actually describes valuation twice over : for information purposes , and again for implementation purposes . a ) The information valuation is the figure used by the Court and the parties in deciding how to share the benefits in question . It is calculated at a date as required by the Court not earlier than one year before the date of the petition , and not later than the date on which the Court is exercising its power . b ) The implementation valuation is the figure through which the share is actually put into effect . It is calculated at a date chosen by the administrator within the implementation period ( i . e . the period of 4 months which starts once the pension-sharing order and all other requirements to enable pension sharing have been received ).
My client is to receive a pensionsharing transfer from their exspouse ’ s pension plan which is already in drawdown . Is this a drawdown-to-drawdown transfer ? LC : No , this is not a drawdown-to-drawdown transfer . All pension sharing on divorce transfers are received as uncrystallised funds . However , if the transfer is paid from previously crystallised funds then no pension commencement lump sum / tax free cash can be paid when the receiving member puts their benefits into payment . This is known as a disqualifying pension credit . The receiving member must have reached minimum pension age or qualify under the ill-health rule before they can access the pension fund . My client ’ s spouse was in the Pension Protection Fund . How will this affect her pension credit being awarded to her ?
KP : Prior to 6 April 2011 , where couples were considering a divorce , there was no mechanism for sharing the pension compensation due under the PPF in the same way that the value of a pension is shareable . Therefore , the only option available to the Courts once a scheme had transferred to the PPF was to consider offsetting the PPF compensation by increasing the exspouse ’ s share of other pension benefits / assets . Regulations have now been introduced from 6 April 2011 to resolve this issue and PPF benefits can therefore now be shared ( or earmarked if required ). It is important
that you are aware of the two main differences , which are as follows :
• The ex-spouse will not be offered the option of a transfer away from the PPF . The share of the PPF benefits must be held under his or her own record within the PPF scheme and paid as compensation in line with usual PPF rules .
• The solicitor should be aware that a Pension Compensation Sharing Order should be used for PPF purposes rather than the usual Pension Sharing Order .
• Can pension sharing be arranged without involvement of a solicitor / going through the Courts ?
LC : It is not possible to have an unofficial ‘ pension share ’. For such a transfer value to be an authorised payment , this must be done through a Court Order ( other than in Scotland where a registered Minute of Agreement is sufficient ). Whilst it ’ s theoretically possible to make the application oneself , the complexities of the procedures mean it ’ s advisable to have a solicitor involved .
You can read the SimplyBiz and Prudential ‘ Guide to Pensions and Divorce ’ on our website , via the MediaHub . You can also speak to Keeley and her team on 01484 439126 or email them at pensions @ simplybiz . co . uk
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