Newsletter

A new service from 2008. No long complicated explanations, you can email me for those! Just short notes covering situations about Pensions and Divorce, as I come across them.

66. Case Study - Interesting case, her, Teachers Pension and Local Government Pension CETV’s totalling £105,605.  Him with only personal pensions total transfer value £280,153.  To equalise pensions in payment he needed a share in her pension of 9%.  This clearly identifies the fantastic value offered by public sector pensions and the poor value offered by personal pensions and why a report must always be sought. 

65. Pension Protection Fund.  The regulations following the 2008 legislation allowing sharing of compensation are now in place.  The order is not a pension sharing order but a compensation sharing order.  A useful booklet can be downloaded at
http://www.pensionprotectionfund.org.uk/DocumentLibrary/Documents/compensation_and_divorce.pdf

64. State Second Pension ignore at your peril!  In a recent report, husband S2P CETV £106,382, wife S2P CETV £80,717. 

63. Universities Superannuation Scheme - can provide a pension credit calculation similar to the NHS.  Again if you obtain a quote, and USS scheme is the largest CETV, we can reduce our fee.

62. Collaboration.  The role of the neutral IFA has been clarified by resolution.  Subject to correct procedures and full agreement of all parties, including solicitors, the neutral IFA can be engaged to implement any pension share.

61. NHS pension credit calculations.  These are invaluable and should be asked for every time.  Unfortunately their cost seems to be increasing to around £100.  Where the NHS pension scheme is the main pension scheme of both parties we are able to reduce our fixed fee report by £250 plus VAT if a pension credit calculation has been provided

60. Pension Ombudsman Determination, Boughton, - clearly identifies that implementation of a pension sharing order must be undertaken promptly within the implementation period and cannot merely be left to the end of the 4-month term.  With values moving violently in the current economic crisis this is very important.

59. Pre and postnuptial agreements - make sure clients are aware not to change the ownership of an asset subject to a nuptial agreement.   Recently an accountant, for tax planning purposes, was recommending a change of ownership of such an asset.  This would invalidate any agreement.

58. Splitting Headache
Please click the link below to my article recently published in Money Marketing covering some basic issues in sharing pensions. 

http://www.moneymarketing.co.uk/pensions/splitting-headache/1036421.article

57. Cashing in Pensions in Drawdown - From 6th April 2011 taking income out of your pension scheme other than buying an annuity will be called Capped Drawdown or Flexible Drawdown.  Capped Drawdown is the new name for the current unsecured pension and alternatively secured pension, which we all call Income Drawdown.  Flexible Drawdown is a new interesting variation whereby if someone has "Secured Pension Income" of £20,000 or more, from age 55 onwards, they may take from their pension savings any amount they wish, including the whole fund, with that amount being taxed as income.  Secured Pension Income is essentially made up of State Pensions, occupational pensions or annuities, it does not include any drawdown income or other income whether earned or investment.

56. RADMACHER - If you are considering a pre or postnuptial agreement, do not forget pensions.  However bring in an expert to properly identify and value the pension to be ring fenced.

55. The European Court of Justice  - The decision on the 1st March 2011 of doing away with sex discrimination for financial products should mean male annuity rates will worsen, whilst female rates will improve.  The general view is whilst male rates will worsen, do not expect female rates to improve.  CETV’s should increase but again in reality this is not expected to happen in the short term.

54. Revaluation of Private Scheme Pensions - The private sector schemes generally cannot revalue inline with CPI due to their rules.  However, some like BT can and have changed to CPI revaluation. 

53. Cash in Your Drawdown Pension - The new pension drawdown rules will allow in certain circumstances access to the whole pension fund as a cash payment subject to tax.  You may require an undertaking not to cash in pension before proceedings are finalised. 

52. State Pension Revaluation - Whilst public sector pensions are lowering revaluation to Consumer Price Index, CPI, revaluation of State Pensions is now the best of Retail Price Index, RPI, national average earnings, NAE, or 2.5%.

51. Career Average Revalued Earnings - Schemes are regaining prominence particularly with the Hutton report into public sector schemes.  These are defined benefit schemes, which if in the private sector are funded but they base the pension on each year’s earnings throughout employment, not final salary.  All rights to cash equivalents and disclosure of information remain the same. 

50. State Pension Substitution Rules – When a spouse uses substitution to enhance State old age pension by using their former spouse’s National Insurance record, do not forget this is lost if the spouse remarries.

49. Public Sector CETV CPI/RPI - 50 year old lady, identical accrued NHS pension at June 2010 and December 2010.  CETV in June 2010 of £102,708 and December 2010 of £89,810.  This reduction in CETV is a direct reflection of the lowering of the expected future inflation linking following the move from RPI to CPI.  You must remember if a pension credit is being created it is irrelevant as the credit would use the same assumptions in reverse for its calculation.  So if her husband was sharing 50% of her pension the amount of credit he would get would be the same before and after the change.  Where it is important is if you are offsetting CETV's against other CETV's and making sure you have a CETV calculation after October 2010 for Public Sector Schemes. 

48. Public Sector Schemes in General – As always be aware of many more changes that are going to affect public sector schemes particularly retirement ages for both existing members and pension credit members.  Do not rely on old data, forms or websites.

47. Public Sector Pension Escalation Consumer Price Index/Retail Price Index – We are now seeing valuations being produced again for public sector schemes but there is still a backlog.  As anticipated CETV’s are reducing.  As these schemes only provide for an internal share the CPI/RPI issue does not materially affect the benefit available as a pension credit other than the basis of future revaluation.

46. £140 p.w. Standard State Pension – This was only a statement and has not yet even been put forward as a discussion document.  Whilst a good idea, if it happens, it is a long way off. 

45. Death whilst Drawing Down Income from a Pension – Income drawdown, more correctly Unsecured Pension, provide for death benefits to be paid as a lump sum.  The tax charge on death before age 75 is moving up from 35% to 55% and up to age 77.  The draconian 82% tax payable after age 75 has been decreased to 55% from age 77.  Final Legislation is awaited.

44. Maximum Pension Contributions – In the past it was possible to make good a pension debit, following pension sharing, by making substantial pension contributions.  Tax relief will now only be available on pension contributions, or their final salary equivalent, up to a maximum of £50,000 per year.  Unused amounts from the previous 3 years will be allowed to be brought forward.

43. Changes to State Retirement Age – All Women born after 6th April 1950 to 31st December 1953 will see State Retirement age gradually increase to 65.  All men and women born after 1st January 1954 to 5th April 1968 will see their State Retirement Age increase to 66.  Younger people will see their State Retirement Age gradually increase to 67 and 68 but the dates for these increases are still being discussed. 

42. Changes to NHS Pension Scheme – 1995 & 2008 Section – All members of the NHS Pension Scheme are being offered a choice between the two sections.  The key points are that under 2008 the normal retirement date has moved through to age 65 with the loss of all the special class early retirement options.  Essentially for those looking to retire at 60, they should stay in the 1995 section, for those looking to work through to 65 or beyond, they should move to the 2008 section.

41. Consumer Price Index (CPI) – v – Retail Price Index (RPI) – The Government monitors inflation by continually looking at a basket of goods and their ever changing price.  Retail Price Index includes housing and mortgage costs, Consumer Price Index excludes them.  There are other differences.  Generally speaking RPI increases at a greater rate than CPI.  However there are odd occasions when CPI is higher with the unintended consequence that a combined inflation rate of at least CPI will produce a factor higher than both CPI and RPI.  This is why some are saying that whilst this was intended to reduce pension scheme costings, it could actually increase pension scheme costings.

40. Public Sector Scheme Transfer Values – Following the Coalition Governments announcement about changing the indexation linking for pensions from Retail Price Index (RPI) to Consumer Price Index (CPI) the Government Actuary’s Department have said that there will be a delay in issuing CETV’s of up to 3 months.

39. Do Not Rely on Disclosed Papers – The Pension Ombudsman office has stated that a client of mine has no case, being the spouse of a Derbyshire Pension Scheme member. Normal papers and values were disclosed in the usual way to the Court, offering an internal transfer. Pension share implemented only to then find that internal transfer was not available. The Pension Ombudsman office involved stated that as no documentation was issued to the spouse, no contract was in force, therefore no case. Pension and Disclosure Legislation does not provide for disclosure to the spouse of a pension scheme member before sharing, therefore the conclusion is that anything disclosed prior to sharing, even used in a Court cannot be relied upon. It will be important that an appropriate warning is added to all reports and advice.

38. Death Benefits for Pension Credit – Where the pension share remains in a final salary scheme there can be situations where no death benefit is payable, each scheme can be different.

37. Civil Service Pension – Excellent Booklet via http://www.civilservice.gov.uk/Assets/Pensions and divorce Nov 2009_tcm6-1873.pdf

36. Death After Share but Before Implementation – Due mainly to the discretion of the Trustees/Scheme Administrators, this is a difficult area and one that needs to be noted for no other reason than to protect your own indemnity premiums, each scheme can deal with benefits in a different way.

35. CETV Increases – With the new Regulations generally having the effect of increasing CETV’s, be wary of any CETV produced in the summer of 2009 or earlier.

34. QROPS – Qualifying Recognised Overseas Pension Schemes are overseas pension arrangements to which a UK scheme can transfer. Invariably they cannot be shared. Beware of their mention and always seek opinion.

33. What Cannot Be Shared – Basic and Graduated State Pensions, spouse and dependants pensions in payment from previous marriage, compensation payments and benefits that are already subject to an attachment order.

32. Is a Scheme in the Pension Protection Fund? – A full list of accepted schemes is available via the following link http://www.pensionprotectionfund.org.uk/TransferredSchemes/Pages/AllTransferredSchemes.aspx

31. Subsequent Sharing - Section 24B of the Matrimonial Causes Act 1973 allows sharing orders to be issued at any time after divorce. They also allow a second share against an already shared pension but not for the person who received the first share.

30. Additional Voluntary Contributions - AVC’s – Under old Legislation AVC’s had a very specific meaning. Under new Pension Legislation the meaning is lost and the phrase is being used in a generic way. If you are looking to share the value built up in an AVC, always check with the pension scheme as to whether the order needs to be worded so that it includes the AVC or not. In some cases a separate order for the main scheme and AVC is required.

29. Amended 04/2010 From 6th April 2010 the minimum normal retirment age increased to age 55 -

28. Ownership of Sharing Orders – Increasingly, problems are being encountered over who is issuing orders and then who is responsible for following through to ensure implementation. It is imperative that all involved agree responsibilities.

27. Abolition of Safeguarded Rights – The 2008 Pension Act did away with safeguarded rights but it is Statutory Instrument 2009 No. 598 that provides the instruction. The Statutory Instrument came into force on 6th April 2009. Safeguarded rights no longer exist and all the restrictions previously surrounding safeguarded rights have disappeared.

26. NHS Pension Scheme Pension Credit – The provision by the NHS of the estimation of the pension credit they would provide following a particular share is working very well at a cost of around £40. The NHS require the date of birth of the spouse and an indication of a particular share to quote.

25. Armed Forces Pension Scheme 05 – A new Armed Forces Pension Scheme was introduced in 2005, AFPS05. Statutory Instrument 2009 No. 544 states for orders issued after 6th April 2009 the receiver of the pension credit can take benefits from age 55. For previous orders put in place for the 05 scheme, it is possible for the pension credit member to apply for benefits from age 55 on an actuarially reduced basis. Neither routes are yet available for credits in AFPS75.

24. Amended 04/2010 Armed Forces Pension Scheme – The old scheme known as AFPS75 insists any pension credit must remain in the scheme and for no benefit to be payable until age 65. However it is understood the administrators are following the New Rules Act as it applies to the 05 Scheme as detailed below.

23. C.E.T.V.s - I am sorry but this is not a Quickie. We have complicated new Laws and Regulations, which are going to cause significant problems in the area of transfer values and pension credits and create total uncertainty for final salary schemes.

Today GN 11 provides the compulsory process for calculating the cash equivalent transfer value. The vast majority of pension schemes do not provide any indication of what amount of pension credit they will provide for a former spouse until after the order has been made. This has always created uncertainty, however there was comfort in that GN 11 made provision for the benefit created in reverse for a pension credit should be calculated on the same basis as that used to calculate the cash equivalent transfer value for the benefit accumulated.

The New Laws and Regulations effectively create uncertainty. They do away with GN 11 and place the onus on the factors used in a transfer value calculation on the Trustees. We are seeing dramatic changes in the transfer values in one case doubling and in another case halving. These changes can happen between agreement prior to divorce and implementation of the pension sharing order. The consequences can be most dramatic and must be explained to both parties.

The real problem however is that in the past there was a degree of symmetry, that has now been done away with. The Trustees of the scheme can calculate the pension credit they will provide for a former spouse on the same basis as they would calculate the benefit they would provide for any other member for transferring in a value to the pension scheme. This calculation can be significantly different to the calculation in reverse for the cash equivalent transfer value for the member.

All reports, including my own, carry page after page of disclaimer. All experts hoping that the figures they produce are meaningful, useful and appropriate. Moving forward, where a pension scheme will provide no indication of the pension credit they will provide for a given share, we move into an area of complete unknown. The calculation of any estimated benefit for a given share has to be questioned, not only can it be dramatically wrong it could also dramatically change case by case and day by day.

A rather technical but excellent article is provided by David Salter, Joint National Head of Family Law of Mills & Reeve LLP in the December 2008 addition of Family Law under the heading “Pension Transfer Values: The New Regime”.

22.Who is the Widow? - Not New Legislation, but I came across a Prudential Pension Annuity in payment recently, where the definition of a widow is the wife (now divorced) at the date the pension was taken out. In such a case, the best result was attachment not sharing.

21. Pension Protection Fund - The same Law now allows a share to be placed against a pension fund in default, which is administered by the Pension Protection Fund. Sharing of such a pension in the past was not possible. Pensions Act 2008 Part 3 Chapter 1 Sec 107….

20. Safeguarded Rights   - No longer exist. This means that contracted out benefits that are shared can be taken like any other pension, in the form of cash and/or income at any retirement age. This will apply to existing Safeguarded Rights as well as any future shares. Pensions Act 2008 Part 2 Sec 100.

19. Amended 04/2010 Falling Pension Values – The extreme investment market conditions are having a major impact on pension sharing issues. Normal pensions have seen values fall by 25%.

Final Salary Schemes - Due to the long lead time for actuaries to change their basis of calculation, CETV’s for final salary schemes are not changing too much, but not for long.

Money Purchase Schemes Including Personal Pensions – Values will be changing dramatically, even daily. When the recession arrives, investments linked to property could have significant problems with regards to liquidity.

How Will Cases Be Affected - If one party has a final salary scheme and the other party has personal pensions then any share previously agreed but not implemented will find that the money purchase values will have dropped significantly. An £82,000 CETV on the 7th January 2009 was revalued this week at £43,000. The party with the money purchase arrangement, whether larger or smaller than the final salary arrangement, will be disadvantaged. Consider a final salary CETV of £100,000 and a personal pension of £82,000. Sharing capital values requires a movement of £9,000. If that has been agreed but not implemented, then the person with the money purchase scheme, using the above examples, would have £9,000 added to their, now, £43,000 personal pension. Where the personal pension transfer values are £100,000 and the final salary transfer value is £82,000, a share again represented by £9,000 is required. If the CETV for the personal pension now drops to £50,000, the share has been agreed, implementation takes place and they still loose 9% of their £50,000 personal pension.

18. Taking Cash Before Order – A recent case was disrupted because the husband took his tax-free cash without telling anyone, after CETV’s were provided to the pension expert. This did not come to light until orders were issued.

17. Ownership of Order – I have come across several cases recently whereby pension sharing orders were issued by the Court but neither solicitor nor IFA involved took any action, all believing the other was dealing with the issue. It is vital that the order is tracked until final implementation has taken place.

16. SERPS / State 2nd Pension – I don’t apologise for raising this again. A husband and wife recently produced combined CETV’s for SERPS of over £130,000, ignore at your peril. Form BR20 provides valuation.

15. BP Pensions – Excellent website: https://pensionline.bp.com/content/pl

14. Changing Values – With dramatic changes in stock markets, it is not only Money Purchase Schemes that can rise and fall. A Police Force CETV recently changed by 36% being £46,578 in less than 12 months. Caution your clients.

13. Budget Calculator – Do your clients need to produce a list of expenditure? The FSA Budget Calculator website is a very useful basic tool that your clients might find useful in constructing a list:
http://www.moneymadeclear.fsa.gov.uk/tools/tools.html

12. State Pension Age – Every woman under age 58 and man under age 50 is having their state retirement age changed. There is an excellent Pension Scheme Retirement Age calculator available via website www.thepensionservice.gov.uk/resourcecentre/statepensioncalc.asp.

11. Amended 04/2010 Sharing State 2nd Pension – State Earning Related Pension Scheme – I have been telephoned by the Department of Work & Pensions to be reprimanded! They say their notes insist that Legislation only provides for them to provide a share of S2P, where a previous transfer value calculation has been completed. I am still to be convinced, but if you are sharing S2P, obtain a valuation on form BR20 beforehand.

10. Armed Forces Pensions – There is an excellent booklet providing details of all Armed Forces Pensions available on their website . If you click the heading “Booklets relating to …..” a booklet is available entitled “Pension Benefits on Divorce.” http://www.mod.uk/DefenceInternet/AboutDefence/WhatWeDo/Personnel/Pensions/ArmedForcesPensions/

9. Sharing a Pension in Payment – This continues to cause problems. If the pension in question is in payment it does not mean that any credit will automatically be payable as a pension. The public sector unfunded schemes have various normal retirement ages from 60 to 65. Regardless of the age of the member who is receiving their pension, the spouse with the credit might well have to wait until 65 to receive an income. In all situations where the pension is in payment, no pension commencement lump sum, the new name for tax-free cash, is payable to the receiver of the pension credit.

8. Pension Schemes Without Sufficient Liquid Assets to Satisfy Order – All pension schemes can borrow up to 50% of their value. If there are still not sufficient liquid assets, the spouse receiving the credit could become a member of the scheme until such times as assets become available.

7. Sharing a Pension Without Members Consent – Schedule 5 of The Welfare Reform and Pensions Act 1999 states that a pension sharing order can be implemented even without the members consent. An important point I have had to mention on more than one occasion.

6. Issuing A Sharing Order After Divorce – Section 24b of the Matrimonial Causes Act 1973 states “On granting a Decree of Divorce ….. or at any time thereafter…….., the court may, on an application …….. make one or more pension sharing orders…….”.

5. Transfer Day Post Sharing Order – A great deal of misinformation and errors surround the final valuation post divorce. The transfer day is defined in law and is 21 days following the issue of any order. See attached article for more information

4. Amended 04/2010 Pension Protection Fund Sharing – This is now possible following the Pensions Act 2008

3. Amended 04/2010 Safeguarded Rights – The old name for shared contracted out benefits has done away with the Pensions Act 2008 sec 100

2. Overseas Divorce – Whilst overseas individuals can apply for a UK pension scheme share the court proceedings must be in the UK. If you go to Welfare Reform & Pensions Act 1999 section 22 you can see that overseas divorces can be dealt with in the UK by applying for Financial Relief in UK

1. Overseas Pensions – Cannot be shared or attached but can be offset, make sure scheme is truly offshore and not an onshore approved scheme with a funny name.