PENSION SHARING ORDERS – THE PROCESS AND IMPORTANT DATES.

There appears to be increasing confusion over the responsibilities and the dates involved around the issuing of a Pension Sharing Order and its subsequent implementation.  This can become critical with the extremely volatile investment markets, with the Pension Scheme member and/or their spouse either gaining or losing significant amounts of money.  Regardless of what different pension providers may say or offer, what follows is the law as it relates to all situations. 

The Pension Sharing legislation does not differentiate between types of Pension Schemes.  The starting point it to obtain a fair valuation and agree a share.  This immediately creates a problem because the information provided by the various Pension Schemes, which is then used to reach an agreement, is already out of date.  It does not matter how accurate the calculations are, the end result will always differ to that agreed.  Disclosure of information regulations insist that any member, who is not in receipt of pension, of any registered Pension Scheme, be provided free of charge a cash equivalent value (CEV) once a year.  Interestingly these regulations pre-date Pension Sharing Orders, so there is no such regulation that applies to the cash equivalent value for a pension in payment.  Where a cash equivalent value of a pension in payment is required, be prepared to pay a fee.  Nonetheless, contrary to what several insurance companies state, the pension sharing legislation puts a requirement on all pension providers whether active, deferred or in payment, to provide this information.  The divorce etc (pensions) regulations 2000 (SI2000/1123), reg 3 states that the Court is to carry out a valuation exercise at a date specified by the court but not earlier than one year before the date of petition.  Whilst it is common sense that values provided should be up to date, often old values are asked to be considered and it must be remembered that if these are over 12 months old they are in effect, invalid. 

So the parties agree a pension share, which must be expressed as a percentage, see HvH [2010] FLR 173. However, a Pension Scheme cannot act on a pension share until it receives both the pension share and the Decree Absolute.   It can receive one before the other but it cannot put in place the order until it receives both.  A Pension Sharing Order takes effect on the later of the date of the Decree Absolute or 21 days from the date of the Pension Sharing Order, see Matrimonial Causes Act 1973, ss24B (2) and 24C (1) and pensions etc (pensions) regulations 2000, reg9.  This creates the transfer day.  This day becomes very important because many calculations have taken place and a pension share agreed, with Court orders issued prior to the transfer day.  Regardless of what may be thought or agreed, and unfortunately what happens often in practice, the correct position is that all benefits continue to accrue up until this later transfer day.  If someone is a member of a Final Salary Pension Scheme and all calculations were undertaken 6 months previous to the transfer day we now have the transfer day where a further 6 months pensionable service and possibly increased salary might apply.  For Personal Pensions and Money Purchase arrangements you have continuing contributions being paid in.  This becomes important because when a final valuation is placed on the benefits it is those benefits that have accrued up until the transfer day that are taken into account. 
The pension provider has received the Decree Absolute, Pension Sharing Order and created the transfer day, it now has to set about implementing the Pension Sharing Order.  An implementation date has to be set.  However, before an implementation date is set the pension provider is allowed to gather information and, if required, seek payment of fees.  Pensions on divorce etc (provision of information) regulations 2000 (SI2000/1048), reg5 identifies the documentation that a pension provider may request.  It is only once this information and data is received that the pension provider will set an implementation date.  The pension provider then has four months to implement a pension share.  It is important to understand that the four months is from the implementation date, not the earlier transfer day, Decree Absolute or issuing of the Pension Sharing Order.  At some time during the implementation period the pension provider will undertake a valuation of the benefits accumulated to the transfer day.  In law the transfer day is the day that the Pension Sharing Order takes effect but it has not yet been implemented.  See Pension Ombudsman determination Shepherd.  A valuation is undertaken and the member and spouse receiving the pension credit created by the Pension Sharing Order are informed of the amounts. The Pension Sharing Order is implemented in accordance with scheme rules and if necessary, the instruction of the spouse. 

Pension Scheme rules are allowed to state any one of three ways as to how they deal with the disposal of their liability created by a pension sharing order.  The scheme rules will state whether the Pension Scheme insists that any pension credit created by the Pension Sharing Order must remain in the scheme, this is the case for Public Sector Unfunded Schemes, such as Teachers and Nurses.  The scheme rules can also insist that any pension credit created must be transferred out of the scheme, this is the case for most Personal Pensions Schemes.  The third choice is that the spouse receiving the pension credit can make their own decision; this is the case for Local Government Pension Schemes.

Interestingly, the pension sharing legislation makes provision for the situation where the member does not provide information necessary for the pension provider to implement the Pension Sharing Order, in which case the member’s position can be ignored.  However, if the spouse receiving the pension credit does not provide the necessary information, for example where a pension share has to be transferred out, then the pension provider need not take any action.  If subsequently the spouse provides the information there is no requirement on the pension provider to increase values from the time when they were prepared to implement the order.  We have a new factor added to the equation and this is the Pensions Ombudsman determination in the case of Boughton.  Boughton was a case where there were administration delays by the pension provider.  It was clear that all the necessary information had been provided and an implementation date was created by the Pension Scheme. Unfortunately they did not implement the order until near the very end of the four month period.  The Pension Ombudsman determination very clearly states that the four-month implementation period is there to allow Pension Schemes the time to implement an order, it is not there to enable them to delay implementing an order.  In this case the pension provider was required to make good substantial losses, a warning that should be brought to the attention of all pension providers who seek to delay implementing the order.