Pension sharing tips on divorce

The prospect of gaining a pension sharing order which is not capable of implementation is a family law practitioner’s worst nightmare, and I am sure I am not alone in being manic about checking and double checking every possibility before finalising an agreement or minute for decree. Retaining a compendium of pension sharing tips within easy reach of all family law practitioners is highly recommended.

We have now been living with the principle of pension sharing since the Welfare Reform and Pensions Act 1999 came into force on 1 December 2000. Rectification, or remedial steps, are often not possible. The 1999 Act simplified matters for solicitors in establishing that the cash equivalent transfer value within 12 months of the date of separation would provide a valuation figure upon which to base a pension share, using a prescribed formula in order to derive the relevant date valuation. As a decree of divorce, or qualifying agreement, is providing for an entitlement which occurs in the future, practitioners have to be certain that it will be capable of implementation.

Things you need to know

When seeking to establish what information is required with a view to obtaining a pension sharing order, or qualifying agreement, a number of questions require to be asked of the scheme. These are not exhaustive:

• Ask whether the non-member can remain in the scheme, at an early stage in your enquiries. If there is an option to transfer out of the scheme, establish this also. If there is a choice, your client needs suitable expert advice, or at least advice that it should be obtained.
• Establish whether the normal retirement date would apply to the recipient of the pension credit. This becomes even more important when dealing with schemes where early retirement is an option, such as police and army service schemes. Do not assume that the recipient of a pension credit will be able to take the pension at the same time as the pensioner. The chances are that the recipient will require to wait until they are 65.
• Establish what charges the trustee will make, and whether these require to be paid up front.
• Establish, at the outset, whether the scheme is willing to accept a pension sharing order which attracts interest, or a qualifying agreement which provides for interest. Many schemes will consider your court order/qualifying agreement unenforceable in the event that it includes interest. Such schemes do not accept that an order has sufficient clarity if they require to calculate the sum to be debited/credited if interest is to be paid. Practitioners should think about making separate provision for interest to accrue as an independent capital payment payable directly from the pensioner.
• Be aware that many civil service, public service and private pension schemes now insist on completion of their own internal forms. These usually require the signature of the pensioner, and the birth certificates of both parties. Although the forms replicate exactly the same information normally provided in a qualifying agreement, schemes can be belligerent in refusing to implement the pension share until the forms are completed. Once decree of divorce has been granted, the prospect of recovering a transferor’s signature in order to implement the pension share is not always practical. On occasions, practitioners have to insist that implementation proceed without completion of these internal forms, and be certain of their client’s right to do so. Ideally, however, practitioners would wish to avoid reaching an impasse, and it is always prudent to ascertain whether there is a form to be signed before a court order is granted, or qualifying agreement signed.
• If you cannot get a detailed response from the trustees of the scheme, you should nominate a specialist pension adviser to recover and interpret the rules and regulations pertaining to that particular scheme, so as to eliminate the possibility that something will prevent implementation.

And remember…

Intimation of a pension sharing order must be made within two months from the date of extract of decree of divorce. It is not, as some claim, from the date of decree. If in doubt, read s 28 of the 1999 Act.

Do not underestimate the value of a State Earnings Related Pension share. Have your client complete a form BR20 at an early stage, and ask for a similar state pension forecast from your opposition. Take the difference in value into account, on an offset basis, if there is no state pension sharing order/agreement.

Do not forget that if you are attempting to incorporate a fallback provision in a pension sharing clause, always be aware that unless the pension scheme is party to the contract it is not competent to impose an obligation on the pension trustees. Unless it is something the pensioner can implement, it is a meaningless obligation.

Fiona Sasan, Morton Fraser Family Law Team