Implementation

Pension credit is the term for the benefit received because of a pension sharing order.

Pension credits from individual arrangements such as a personal pension must be transferred externally to another pension arrangement in the former spouse’s own name.

Pension credits from an occupational pension scheme can possibly be dealt with as an internal or external transfer.

An internal transfer provides the former spouse with pension rights in their own name within the transferring scheme, separate to the member. It should not be confused with an attachment order which remains the members own pension rights.

Internal transfers are also known as shadow membership.

Unfunded public sector schemes such as the NHS, Teachers’, Police and Armed Forces will only allow shadow membership. It is not possible for the spouse to transfer away from these schemes, instead they will be made members in their own right.

Funded occupational schemes in the private sector can provide shadow membership on a voluntary basis, but the majority do not provide such benefits. It is important to establish at the data gathering stage as to whether shadow membership is going to be available on implementation.

Some schemes will allow either an internal or external transfer.

If there is a choice between an internal or external transfer, then careful consideration of the options and how they best meet your needs will be required.

If the occupational pension scheme does decide to allow shadow membership, then some of the considerations should include:
The type of benefits to be provided, whether this is final salary or money purchase
The retirement age at which the benefits will become payable
Whether early retirement will be allowed, and if so whether penalties will apply
What benefits will apply on the death of the ex-spouse, either before or after implementation and before or after retirement
What is the default option?

All funded occupational pension schemes and individual arrangements must allow pension credit rights to be transferred to another pension arrangement.

This may require the recipient of a pension sharing order having to seek specialist advice from an independent financial adviser (IFA).

The effective date of the pension sharing order is the later of the date of the decree absolute or 28 days following the date of the pension sharing order.

However, the implementation period does not start on the same day as the order becomes effective.

Any benefits accrued by the member, i.e. contributions, additional service or pay rises, after the effective date of the order will not be considered in the final calculation of the pension credit.

A pension sharing order becomes effective from 28 days after the Court Order, or the date of the decree absolute if later and your entitlement to your pension income will be reduced by the percentage of the pension sharing order from that date.

However, your pension provider is unlikely to actually reduce the payments until after the pension sharing order has been implemented.

You will at that stage be expected to repay any overpayments – going back to the effective date of the order.

Once the scheme trustees / managers have received the pension sharing order and all the associated documentation the order must normally be implemented within a 4-month period.

This is known as the implementation period.

The documentation that the scheme trustees / managers require is

• The decree absolute
• The consent / court order
• The pension sharing annex (P1)
• Receipt of the required information set out in regulations

An application must be made to The Pensions Regulator (TPR) before the end of the implementation period

TPR must be satisfied that one of the following events applies

• The scheme is being wound up
• The scheme is ceasing to contract out
• Trustees/Managers have not been provided with sufficient information to discharge their liability within the implementation period
• Either the member and /or the former spouse have disputed the cash equivalent
• Implementing the order eg the scheme is underfunded would prejudice the financial interests of the scheme members.

An extension can be granted where TPR have insufficient time to consider the application before the end of the implementation period.

If the trustees/managers fail to implement a pension sharing order within the timescales then they face fines from TPR of up to £1,000 for individuals and £10,000 for corporate trustees.

A pension sharing order must be issued by the court either by way of a court order for a contested case or by a consent order if by agreement.

The order is issued to the trustees/managers by the Court, in England and Wales, but there is evidence that this is not occurring in all cases and so it is good practice for copies to be sent to the scheme directly to ensure that they are aware of its existence and to ensure that the implementation period commences as soon as possible.

The order will be accompanied by an annex to the order that will detail the pension share as a percentage of the member’s cash equivalent transfer value, which may be up to 100%.

There must be a separate annex for each pension arrangement.

Before a pension sharing order is made the Trustees / managers must provide in writing a schedule of the charges they intend to levy in respect of the administration of pension sharing orders to the member and/or spouse details.

Details of the charges should have been disclosed at the data gathering stage.

A scheme may delay implementation of the Pension Sharing Order where charges remain outstanding provided that the scheme trustees / managers had provided details of the requirement for the charges to be paid before implementation, within 21 days of becoming aware that an order may be made.

A scheme must issue a notice of charges to the member and former spouse within 21 days of receipt of the pension sharing order.

If there are no other outstanding requirements, then the implementation period must commence within 21 days of the charges being paid.

The Government has not imposed any restrictions on the amount of charges that can be levied, but the Pension and Lifetime Savings Association (formerly the National Association of Pension Funds (NAPF)) have produced a schedule of recommended charges to be made for the implementation of a pension sharing order.

http://www.plsa.co.uk/PolicyandResearch/DocumentLibrary/~/media/Policy/Documents/0180_Pension_sharing_charges_NAPF_guidance_0711.ashx

Some Trustees / managers may allow for the payment of charges by a deduction from the pension debit and credit benefits at the time of implementing the order but others may demand payment of the charges in cash before implementing the order, and this may be sufficient to delay the commencement of the 4-month implementation period.

Again, these details should have been obtained at the data gathering stage.

If the implementation is being delayed because a party continually refuses to make payment of their share of the implementation fee then the other party may wish to consider paying the charges on behalf of the other party and this will then be recoverable as a debt.

The implementation period may be postponed where the Trustees / Managers have issued to the member and the former spouse within 21 days of receiving the pension sharing order a notice informing them that the charges are to be paid before the implementation period will start.

The trustees / managers can only postpone the implementation period in this way if they have previously notified the member and / or former spouse within 21 days of becoming aware that a pension sharing order may be made that the charges must be paid either in full or in proportion, before the implementation period will start.

Once the charges have been paid the trustees / managers must within 21 days, commence the implementation period and issue a notice to the member and former spouse that the implementation period has commenced provided that all other requirements have been met.

The scheme trustees /managers must issue a Notice of Implementation to both the member and former spouse within 21 days of receiving all the requirements to commence the implementation period.

The Notice of Implementation should confirm

• That all the information has been received
• The start date of the implementation period
• The date by which the pension credit will be discharged

Penalties can be applied if the Notice is not issued.

Whilst the decision on how to share the pensions has been based on information obtained at the beginning of the process this is not the actual amount that the settlement will be based on.

During the 4-month implementation period the scheme trustees / managers will recalculate the Cash Equivalent to determine the exact amount to which the pension credit percentage will be applied.

This is known as the “valuation day”.

It is recommended that this is avoided as the ‘default option’ may apply.

The default option is what action will be taken in the event of the former spouse being granted a Pension Sharing Order, but not providing details of where they wish the benefits to be transferred to.

The default option may be merely that the transferring scheme will refuse to implement the Sharing Order until they have been provided with details of the receiving scheme, but this must be communicated to the ex-spouse within 21 days of receiving notice that a Sharing Order may be made, to be able to delay the implementation period.

The scheme trustees / managers may decide to transfer the benefits to a Section 32 buyout policy of their own choosing.

Once the implementation of any pension sharing order(s) have been completed, this may seem the end of it – thankfully!

However, there are several things you may wish to consider when you are ready.

These may require the services of a private client solicitor and an independent financial adviser, and we work closely with a specialist firm FiveWays Wealth Management.