Orders Relating to Pensions
Divorce & Pensions
A pension is a future asset of a party as well as a future source of income, and as such will be taken into account in a financial settlement. Pensions are a particularly complex area of any financial settlement on divorce or separation and require extremely careful consideration before any final agreement is made. In almost every case it will be wise to obtain legal advice to ensure you are getting the best possible outcome for you.
Orders Relating to Pensions
There are a range of orders available to the court when addressing the issue of pensions:
Pension Sharing Orders
Pension Sharing Orders are the most common form of “pension” order.
The Court has power to make an order that one party’s shareable pension rights are transferred to the other party.
The order will set out what percentage of the value of the shareable pension rights is to be transferred.
Once an Order is made, the beneficiary will have an absolute entitlement to the pension fund and is not affected by any subsequent bankruptcy of the pension holder.
The basic state pension cannot be the subject of a pension sharing order but your additional state pension can be.
Pension sharing orders are available in respect of all types of pensions to include occupational and personal pension schemes.
When can this order be made?
A pension sharing order is only available in respect of petitions for divorce or nullity, but not judicial separation, filed on or after 1st December 2000.
If the petition is earlier than this date, pension sharing will only be available where Decree Absolute (now Final Order) has not been granted and it is possible to rescind the Decree Nisi (now Conditional Order) with the consent of the other party to the marriage.
After the Decree Nisi (Conditional Order) is rescinded, it will be possible to begin new proceedings when pension sharing will be an available option.
When does the order take effect?
Pension sharing orders will take effect once Decree Absolute (now Final Order) has been granted.
The trustees or managers of the relevant pension scheme/s are thereafter required to give effect to the pension sharing order within four months.
Can the order be varied?
Once the Decree Absolute (now Final Order) has been granted, the pension sharing order cannot be varied.
Attachment Orders
An alternative approach is to ask the court to make an attachment order (previously known as “ear-marking” orders).
The effect of such an order is to require those in charge of the pension scheme to pay amounts, expressed in percentage terms, to the person named in the order, who is not the holder of the pension.
Attachment orders do not have the same protection as pension sharing orders and are particularly vulnerable to claims of bankruptcy, in which circumstance the whole of the pension fund would vest in the trustee in bankruptcy, irrespective of whether there is an attachment order in place.
Unlike pension sharing orders, an application can be made to vary attachment orders at any time.
There are three types of attachment orders:
(1) Attachment for income purposes
Such an order provides for periodical payments to be paid to one party up to the death of either party (providing the receiving party does not remarry).
(2) Attachment for a capital sum
The effect of this order is to provide a deferred lump sum payment from the pension. This lump sum is paid when the pension is taken. The court does not however have power to order the pension holder to take their pension at any time and so there is a great deal of uncertainty with these orders.
(3) Attachment of death in service benefits
A pension scheme will usually specify who should receive the appropriate benefits of the scheme should the holder die before taking the pension.
An attachment of death in service benefits order can force the holder of the pension to specify that the other party should receive such benefits.
Pension Protection Fund (PPF) Compensation
As of 6 April 2011 the court has power to make a pension sharing or pension attachment order in regard to PPF compensation.
Offsetting
Offsetting can be used as a way of compensating one party for the loss of pension benefits by means of the payment of a lump sum or transfer of property. However, it is important to note that the value of a pension will not equate “pound for pound” with the value of capital assets and as such there is a high degree of risk in seeking to offset.
The Value of the Fund
A pension scheme’s Cash Equivalent Transfer Value or CETV is required by the Court when assessing the value of any pension/s. However, when considering pension sharing it is important to be live to the benefits and restrictions of the various types of schemes. There are also a number of different actuarial factors required to be taken into account to achieve, for example, equality of income in later life by way of pension sharing. It is therefore nearly always advisable to obtain actuarial advice.
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