Notes on Pension Sharing (Pensioners)



PENSION SHARING (PENSIONERS) | | |

These notes have been prepared to comply with the Welfare Reform and Pensions Act 1999 and the Finance Act 1999, in so far as they allow pension rights in the BBC Pension Scheme (the Scheme) to be shared with an ex-spouse on divorce or nullity of marriage. They are not an authoritative statement of your legal rights. Matrimonial proceedings vary across the United Kingdom of Great Britain and Northern Ireland. You should consult and be guided by a suitably qualified family law practitioner on all matters relating to divorce.

What is pension sharing?

It is a means by which pension rights are brought into the reckoning when dividing up the assets of a marriage. A proportion (or all) of a member’s rights can be transferred to the ex-spouse as part of a clean break financial settlement, when a divorce becomes final. It creates a ‘pension credit’ for the ex-spouse and a corresponding ‘pension debit’ for the member.

Either party to a divorce can ask the court for a pension sharing order. It is not compulsory. Couples can choose to offset pension rights against other assets (e.g. the family home) or to ‘earmark’ some (or all) of a member’s benefits to go direct to the ex-spouse when they come into payment.

It is not possible to have both pension sharing and earmarking in respect of the same pension rights.

Pension sharing is part of divorce legislation and applies only to legally married couples. It does not apply to the break-up of same sex partnerships or ‘common law’ marriages.

What rights are shareable?

‘Shareable rights’ include all pension rights a member has in the Scheme (i.e. scale benefits, pension credits, Added Years (Old Benefits only), employee and employer additional voluntary contributions, any guaranteed minimum pension and benefits calculated using the reference scheme test). Benefits payable under the State earnings related pension scheme (SERPS), Stakeholder schemes and the second State pension can also be subject to pension sharing.

In England, Wales and Northern Ireland, all pension rights accrued up to the time of divorce can be shared. In Scotland, only those rights that have accrued during the marriage can be shared.

The basic State pension, equivalent pension benefits (when they represent the only rights a member has in the Scheme), and spouse’s or dependant’s pensions already in payment are exempt.

How are pension rights valued?

To consider whether pension sharing is an appropriate method of dealing with pension assets, the divorcing couple needs to tell the court the transfer value of their accrued pension rights. A transfer value represents the capital cost of providing the benefits to which a member is entitled. It is calculated to provide a “cash equivalent” of the pension in payment, including dependants’ benefits and future increases. The cash equivalent transfer value (CETV) is found by discounting the value of future benefits to the date of transfer using an appropriate rate of interest, which is one of a number of assumptions provided by the Scheme’s actuary. The process is akin to calculating what it would cost to buy from an insurance company a fully paid up annuity equivalent in value to the member’s existing benefits.

Once a pension is put into payment the member has no right to a transfer, other than may be ordered by the courts as part of a divorce settlement. It follows that a CETV quotation in respect of a pension in payment is issued solely for use in connection with divorce proceedings. It confers no general right of transfer. It is in effect a notional CETV. A summary of the basis on which CETVs are calculated attached as Appendix 1 to these notes. In addition, the value of a pension in payment is subject to a minimum value calculated in accordance with the assumptions underlying the Minimum Funding Requirement, as specified in the actuarial guidance note GN27.

Anyone intending to apply for a pension sharing order must say so in his or her original divorce application (Form A). A copy of the application is sent to the respondent. If they have not already done so the applicant and the respondent must apply for a valuation of their pension rights within seven days of receiving notification of their first appointment at court (normally within 12 to 16 weeks from when the application was served). They must complete and exchange a detailed financial statement (Form E), including pension information, no later than five weeks before the first appointment. A CETV obtained in the 12 months prior to the application can be used for this purpose.

The Pension & Benefits Centre (P&BC) will normally provide a CETV within 15 working days of receiving a written request from a member or a member’s legal adviser, or a court order.

A spouse is not entitled to request or receive a member’s CETV from the Scheme.

The DSS will provide on request a valuation of the member’s SERPS rights and an explanation of how a sharing order will affect State pension rights.

What do I have to pay?

The Scheme’s policy is to recover from the divorcing couple the costs involved in: the provision of information (over and above that which the member or spouse has a right to receive under the existing statutory disclosure requirements); compliance with a pension sharing order or agreement; and any other activities attributable to its involvement in pension sharing in respect of the divorcing couple.

A schedule of the Scheme’s charges is attached as Appendix 2 to these notes. They are in line with the scales recommended by the National Association of Pension Funds.

The Scheme requires that all charges be paid by cheque before a sharing order or agreement takes effect and is implemented.

Charges can be apportioned between divorcing couples either by the court order or by agreement. Unless the Scheme is notified of a split, all charges are payable by the member.

What is the value of the pension credit?

A pension sharing order or agreement will usually specify the percentage by which a member’s CETV is to be reduced (Scottish courts can specify an amount). This involves calculating a fresh CETV for which a charge will be made. The new calculation date is decided by the Scheme, but will be within the implementation period (which is four months from when an order or agreement takes effect) and notified to both the member and the ex-spouse.

The value of the pension credit will therefore be equal to the amount by which the member’s CETV is reduced. Any part of a credit that relates to a share of the member’s contracted-out rights will be identified and referred to as ‘safe-guarded rights’.

How does the Scheme treat a pension credit?

The Scheme’s current policy is to use a pension credit to make a transfer payment to another pension arrangement that will provide retirement benefits for the ex-spouse. Scheme membership will not be offered.

The ex-spouse will be required to consent to a transfer of the pension credit and to nominate a suitable pension arrangement to receive it. If he or she fails to do so, the Trustees will transfer the pension credit to a pension arrangement of their choice. Whilst they will take care in selecting a pension arrangement, they will not be responsible for any loss incurred by the ex-spouse and his or her dependants.

If the ex-spouse dies before a pension credit has been discharged, the Trustees will hold the value of the pension credit on discretionary trust, to be allocated as they see fit.

What is the implementation period?

Generally speaking the Scheme has four months in which to comply with the terms of an order - ‘the implementation period’. Before the implementation period can begin the Scheme must have received:

1. payment of the flat-rate charge for processing an order and any outstanding charges in connection with pension sharing;

the information specified in Appendix 3 to these notes.

How is the member’s pension affected?

The member’s rights are reduced by the percentage (or amount) specified in the pension sharing order or agreement, backdated to the effective date of the order. In the event that the member’s pension has been paid beyond the effective date of the sharing order, any overpayment of pension will be recovered from the member. The reduction applies on a benefit by benefit basis. For instance, any guaranteed minimum pension is reduced by the same percentage as the scale pension, as are pension credits, additional voluntary contributions, etc.

Any new spouse’s pension, if the member remarries, or nominated dependant’s pension will be based on the reduced pension rights.

Additional information

All correspondence should be addressed to: Pension Operations Manager, BBC Pension Scheme, Broadcasting House, Cardiff, CF5 2YQ.

General queries about pension sharing can be dealt with by calling the Scheme’s pension service line on (029) 203 22811. The P&BC cannot give financial advice.

In deciding how to use a pension credit the ex-spouse should obtain independent financial advice. A guide to financial advice is available from the Financial Services Authority (020 7676 1000 and .uk). IFA Promotion will provide the names and addresses of three local independent financial adviser (020 7971 1177 and .uk).

25 May 2005

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