Pension sharing
The Welfare Reform and Pensions Act 1999 was a step forward, with pension sharing becoming available from 1 December 2000. With pension sharing, pension assets are valued appropriately and aggregated with any other assets, and the courts issued an order dividing those assets accordingly. There is a clean break and the pension assets become the property of the ex-spouse and can be transferred into a pension wrapper in their own name.
Payment challenges
Pension earmarking orders will normally pay a fixed percentage of the pension income, and were designed when it was not possible to take the whole pension amount as cash.
Post-April 2015, if the member takes their entire pension as a cash lump sum then the ex-spouse may not receive their correct entitlement. It will be important to check the wording on the earmarking order, and even seek advice to ascertain whether it can be amended.
The FCA (CP 15/30) has realised this and, in its consultation, regarding Attachment Orders it says:
“5.42 ... there may be the potential to circumvent the intent behind the attachment order in the context of the pension freedoms... a court, in writing an attachment order, may not have anticipated the possibility of an individual withdrawing all of their pension savings in cash, nor the possibility of an individual accessing their pension savings from the age of 55.”
“5.44 We propose guidance for providers and advisers that they should take into account any attachment orders made by a court on a divorce or dissolution of a civil partnership... we propose guidance that an operator of personal or stakeholder pension schemes should ensure it is aware of, and acts fully in accordance with, any attachment orders...
“5.45 We have discussed with the DWP whether trustees and providers should be required to notify the relevant former spouse or former civil partner on receiving an application to access pension benefits... If the application is to access benefits in a way that is not expected, and might be counter to the intent of the attachment order, the former spouse or former civil partner may wish to apply to the courts for a variation of the attachment order.”
This is all very good, but is fraught with difficulties.
It appears it would be a requirement for the provider/operator of the pension scheme to consider the intent of the original order, contact the ex-spouse and not pay out until the ex-spouse has confirmed whether they are going back to court. This puts a considerable burden on the trustee/operators who, presumably, could be found liable if the order was circumvented or even delayed.
As mentioned before, there would appear to be more pension sharing orders than attachment orders, and the FCA says it is less concerned as these “transfer irrevocably a share of the value of the pension benefits to the former spouse or civil partner”.
