9 Step Guide
Pensions and Divorce The Process
Pension Sharing - A Simple Guide
Pension Sharing - A Technical Guide
Quick Pension and Divorce Notes
Please click on the appropriate link to find out more about the different sections that make up the Auto-Enrolment rules.
It is now law for every employer with 1 or more workers to comply with auto enrolment and make pension contributions from your start date. Here at Richard Jacobs Pension & Trustee Services we have put together this simple guide to take you through 9 easy steps to prepare you for automatic enrolment. We recommend preparing 14 months in advance when The Pension Regulator should be contacting you.
1. Find your start date Now
Find your starting date called staging date. You will need to know the number of workers at 1st April 2012 and your PAYE Ref number.
Then visit http://www.jacobs-pensions.co.uk/autoenrolment
2. Nominate person responsible 14 Months
You will need to nominate a person, to The Pension Regulator, of sufficient authority who will have access to all payroll information including dates of birth, sex and salary for all workers.
3. Assess your workforce 6-12 Months
There are 3 categories of work force, each of those categories create different responsibilities concerning auto enrolment. Every worker will have to be placed into a category.
For definitions visit http://www.jacobs-pensions.co.uk/autoenrolment
4. Review your pension arrangement 6-9 Months
If you are to use any existing arrangements a thorough, time consuming, investigation will have to take place to make sure they match auto enrolment conditions, some don’t.
5. Choose a qualifying pension scheme 6 Months
For those workers not being placed into an existing qualifying scheme, you can nominate a different qualifying scheme. This decision is probably the most important decision as it will affect your time and cost charges for a long time in the future.
6. Communicate changes to your workers 3 Months
Each worker will require several specific letters, relative to their category.
7. Automatically enrol eligible jobholders into a scheme
We can guide you through the correct process.
8. Register with The Pension Regulator and keep records
It is essential to comply with Pension law, to register and maintain your records.
9. Contribute to your employees pensions
Contributions must be paid from the specified date at the appropriate rate.
Eligible employees can opt on in the opt out period using the opt out notice.
The opt out period is 1 month following the receipt of joining documents from the pension scheme and instructions on opting out. An employee has to become a member of the pension scheme before they are able to opt out. The pension provider provides details of how to obtain the opt out notice.
The opt out notice can not be provided by the employer or the Independent Financial Advisor.
It is possible that a premium will be deducted and paid to the pension scheme prior to receiving the opt out notice. in this case membership would need to be unraveled including premium refunds.
Any members who opt out need to be re enrolled on every three year anniversary of the staging date. If a member has passed the one month opt out period they are no longer able to opt out, however can at that point cease being a member of the scheme, in this scenario premiums do not need to be refunded and it is at the discretion of the Employer as to whether they can join.
The parties to a divorce will either agree or be directed by the court that a particular pension share will be issued. This share will be based on information that is already out of date and it will be many months, if not years, before it can be put into place. Everyone therefore, must understand that no matter how accurate the figures are the eventual outcome will always be different to the advantage and/or disadvantage of either or both parties. A Pension Sharing Order does not take effect until it has been served on the Pension Scheme along with a copy of the Decree Absolute. They can be served separately, but until the Pension Scheme receives both then it cannot act.
Having received a Pension Sharing Order the Pension Scheme will then write to both parties informing them of what has happened and ask for certain information. Until that information is provided, which can also require the payment of fees, the process to put the order into effect does not start. The Pension Scheme will inform the spouse receiving the share, known as a pension credit, how they discharge of their liability to the credit. They may insist that the pension credit stays in the Pension Scheme, this being the case for all Unfunded Public Sector Schemes like the NHS and Teachers Pension or they may insist that it is moved out of the scheme. This is common for all Personal Pensions. There is a third choice that leaves the spouse to decide themselves how they would like to deal with the pension share. This is the situation for Local Government Pension Schemes.
Having received all the information necessary, and if appropriate the payment of fees, and again if appropriate the instruction as to what should happen to the pension share, an implementation date is created. The Pension Scheme must implement the Pension Sharing Order, which must be expressed as a percentage, within four months of the implementation date. The implementation date is not the date of the divorce; it is not the date the Pension Scheme receives the Pension Sharing Order and Decree Absolute, it is the date defined by them once they have the necessary information to enable them to implement a pension share.
Within the four-month period the Pension Scheme will completely revalue the benefits. Those benefits will include future contributions and salary in-service up to a date 21 days after receiving the Decree Absolute and Pension Sharing Order. If agreement was made many months earlier to a particular pension share then it can be seen already that the final figure is going to move purely because of extra benefits being accrued. Add to this the extreme volatility in investment markets and changes in age then it can be seen why figures can change very dramatically. Having created the implementation date, and having undertaken a new valuation, the pension provider then has to implement the Pension Sharing Order by creating the pension credit in the way agreed or dictated. A recent Pension Ombudsman determination in the name of Boughton clearly identifies that Pension Schemes cannot merely delay implementing a Pension Sharing Order until the allowed four months period from the creation of the implementation date. If an implementation date has been created then it is necessary for the Pension Scheme to implement the order as quickly as possible.
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 pension scheme 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  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 memberï¿½s 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.
No long complicated explanations, you can email me for those! Just short notes covering situations about Pensions and Divorce, as I come across them.
This has and continues to change dependent upon the scheme. The Civil Service Pension Scheme is age 60. The Local Government Pension Scheme and Armed Forces Scheme is age 65. For NHS, Police, Firefighters and Teachers it can be either 60 or 65 depending on the member’s scheme. Different members in the same scheme can create different pension credit ages. Never assume always ask the question when asking for a CEV “what is the normal retirement age for a pension credit member should a share of my pension take place.”
Great care is required when sharing a voluntary contribution scheme. There is no set rule as to whether an order covering the main company’s pension scheme covers any attaching voluntary contribution scheme or not. You cannot assume either way. Whilst free standing additional voluntary contribution schemes require their own pension sharing orders, some additional voluntary contribution schemes particularly with big companies are written under the rules of the main scheme in which case an order against the main scheme also applies to the AVC. Others have separate rules in which case a separate order is required for both. The only way to obtain certainty is to ask the question.
Full technical background to this quickie is on the below website under quickie pension and divorce notes number 99 Additional Voluntary Contribution Scheme – Technical Background.
Occupational pension law places a requirement on all occupational pension schemes that they provide the facility for a member to make additional voluntary contributions. These schemes generally known as “additional voluntary contribution, AVC” schemes can be provided through the main scheme rules and therefore subject to the rules of the main scheme or on separate stands alone rules basis. There is no set pattern as to which way a scheme will offer its voluntary contribution scheme and some schemes offer both!
Where the voluntary contribution scheme is set up within the main scheme rules then any pension sharing order placed against the main scheme applies equally to the main scheme and the AVC scheme. Where the voluntary contribution scheme is separate to the main scheme, separate pension sharing orders are required. It is therefore very important, when identifying a share when there is an AVC scheme involved, to ask the scheme whether one or two orders are required. If the answer is one then the order will apply to both the main scheme and the AVC scheme. If it is two then separate orders will be required enabling a different share to be placed against both arrangements.
With money purchase schemes it is often usual for the voluntary contribution to go into the main scheme itself so whilst the member may pay a higher contribution rate the value of that contribution is held in the main scheme and as such only one order is required.
We now have a further complication in that there is something known as a Free Standing Additional Voluntary Contribution Scheme, FSAVC. These as the name implies are completely separate freestanding arrangements similar in constitution to the personal pension. These as the name implies require a separate pension sharing order with whatever share is required.
To complete the picture above I mentioned money purchase scheme additional voluntary contributions are often catered for with an increase in contributions to the main scheme, we have with final salary schemes the ability to buy “added years”. This is technically an additional voluntary contribution with the member paying an increased contribution or in some cases a lump sum to buy extra years’ service in the main scheme. As you can see this extra contribution purchases benefits in the main scheme and would be automatically incorporated in any pension sharing order against the main scheme.
This is an interesting situation and one that has been tested in the Courts and found correct.
It is always important when asking for a CEV that it is mentioned that it is required for divorce proceedings. Different time scales with regards to disclosure apply and as is seen in this case the figure can be different to a CEV not involved with divorce.
The pension sharing process is particularly arduous only starting when the Decree Absolute and Pension Sharing Order have been served. In the implementation stage, after divorce, a new CEV has to be calculated for the member for the benefits that exist at that point in time. At that time there is no Spouse so no widows/ers benefit, and it is therefore excluded from the calculation for the final share. As a result the NHS and several other public sector schemes exclude the widows/ers benefit from the initial calculation.
The immediate response to your question is how could a CETV be offset with a higher figure. However, having given the question a little more thought, I can think of situations where this might apply.
It effectively revolves around the CETV not being a full representative value of the pension itself. Here I am thinking of perhaps a policeman aged 45 with guaranteed retirement in the next few years where the CETV does not take into account that fantastic advantage. So the question might be more about how realistic is the CETV.
A similar situation could be a final salary scheme where the scheme itself is significantly underfunded. Here the true value might be considerably more than the underfunded CETV. The benefits that have accumulated will be represented by the higher value.
Another situation could be with old retirement annuities with guaranteed annuity rates contained within them. I have recently issued a report for such a scheme where the fund value was £300,000 but the client aged 74 had guaranteed annuity rates within that contract of 12%. So the CETV is true at £300,000 however the real value of the pension is almost double at £600,000 and if offset were considered in that case I could easily see an offset figure greater than the CETV.
The answer to your question is yes there are situations where an offset figure could be greater than the quoted CETV however in all situations there would need to be a clear statement as to why.
There are still times when attachment orders can be very effective for example in cases of poor health. Due to their general lack of use, it can be easy to forget when they might be appropriate. Such a case is with lump sum death in service benefits. Section 25c of the Matrimonial Causes Act clearly states that it is possible to attach lump sum death in service benefits. In doing so, it must always be remembered that death in service benefits are generally only available when the member dies whilst in the service of that employer.
With section 11 of the Welfare Reform and Pensions act 1999 (WRPA 1999) we had from the 29th May 2000 the long awaited legal provision that prevented a trustee in bankruptcy (TIB) having access to a new bankrupts pension. The TIB would still be able to apply to the court for an income payments order (IPO) under S310 of the Solvency act 1986 if a pension was in payment and if appropriate.
However, we now have a recent high court case Raithatha v Williamson which appears to have upset the equilibrium. In this case, the court found that there could be no logical reason why legislation should distinguish between a bankrupt that had drawn pension benefits and was therefore susceptible to an IPO and one who was entitled to draw benefits but had chosen not to do so. We have the situation that where a pension has not been drawn, crystallised, but the member is of such an age where he could draw his pension, the TIB may be able to insist the pension is crystallised taking the lump sum payment and an IPO against the income, if appropriate.
Unfortunately, this now creates the situation where a TIB may well have a charge against a pension fund and therefore there is uncertainty as to whether a pension sharing order would stand if applied to a bankrupt’s pension. This case was unfortunately settled out of court prior to appeal, so the original ruling still holds. It is generally considered that if a pension sharing order, under normal circumstances, is served prior to bankruptcy then that would be away from the grasp of the TIB. However, if we have a case where an order is being considered or served after bankruptcy, we now have the uncertainty of not knowing what rights the TIB has and whether the order can be implemented
I am now able to provide more detail concerning the Government’s intention to change the current situation of inheriting a former spouse’s national insurance record on death or divorce and the sharing of state second pension. The Secretary for Work and Pensions presented to parliament, a consultation document entitled “single tier pension; a simple foundation for saving” This can be obtained from the following linkwww.dwp.gov.uk/docs/single-tier-pension/pdf
This has now been updated with the chancellor’s statement in the March 2013 budget that, subject to parliamentary approval, he wishes to bring forward the introduction of the single tier pension to April 2016. The consultation paper contains a mass of transitional arrangements. But at pages 20 and 30 you have a graphic display of the extremely complicated system as it currently stands, paragraph 26 on page 93 Annex 3 you have the statement “…there will be no rationale for allowing people to inherit or derive state pension income based on the national insurance record of their spouse or civil partner.” This means that inheriting a previous spouse’s national insurance record on death or divorce will cease. Furthermore, at paragraph 48 on page 98 annex 3, we have the statement “pension sharing will not be applied to the single tier pension. However, existing share orders will be honoured and the rules will allow for sharing of protected payments where these are awarded.”
With the time taken from agreement through to implementation of a pension sharing order always being far longer than expected, we are very soon going to reach the point where it will be inappropriate to consider applying for sharing of state second pension. This does not mean that we cannot take the payment of state pensions into account, but in the long term there should be the general assumption that with the single tier pension the payment of state pensions to both parties should be very similar.
91. New State Single Tier Pensions – Watch This Space 2
Amazingly the consultation also does away with the substitution of a former spouses national insurance record on death or divorce.
This case whilst interesting to family lawyers from the point of view dealing with company assets in a financial settlement has no bearing on pension sharing. A Pension Sharing Order is issued against the pension scheme, not the company. The Pension Sharing Order can impose on the scheme a requirement to change the beneficial owner of assets.
88.Drawing benefits before pension share implemented causes severe problems
Pension CEV’s were disclosed, share agreed, but before PSO served, member drew down his tax free cash – an expensive mess – make sure your client is protected.
In a recent case a final salary CEV increased by over £100,000 in 9 months. Both CEV’s were right, it was just the trustees changed the calculation factors
86.Estimation of pension credit
The NHS Universities Superannuation Scheme and now Teachers Pension will now all provide an estimate of the pension credit they will provide for a particular share. This is always worth asking for when requesting the CEV.
85.What can go wrong between agreeing a pension share and the share being implemented
84.The creative use of pension scheme assets could help the divorce process
See attachment on email for The Telegraph article
Should either spouse die during the process of issuing, through to implementing a pension sharing order, the provision of death benefits must not be taken for granted. There are even situations where, in this period, if the member dies nothing will be paid out. Each case is individual; do not promise either party that benefits will be available during this period. Always ask for assistance if this question needs to be answered, but also, always make both parties aware, particularly the spouse, receiving the credit, that death benefits might be restricted.
If you have not received my separate email concerning this exciting venture, briefly I am offering to set up a conference call, for which I will not charge, at 8am, by appointment, to discuss the pension arrangements of the divorcing couple. I am happy for all participants to join in; each can be at a different location.
The European Court of Justice directive on gender discrimination in financial products must be ratified by the UK Government by the 21st December. Whilst this should equalise annuity rates it would appear that insurers may individually underwrite each annuity on a health basis. This may result in the current situation of different rates continuing.
Amazingly, 12 years on, pension providers are still refusing to provide CEV’s. The legislation is clear, Disclosure of Information Regulations provide for the provision of a free CEV, once a year, for any pension not in payment. Divorce legislation provides a stricter timetable for the production of this information so it is always important when asking for CEV’s to state, it is required for divorce proceedings. For a pension in payment there is no provision under Disclosure Regulations for a CEV, it can be charged for, but the pension sharing legislation again, insists that the provider must provide a CEV. In such cases it is imperative that mention of divorce proceedings is included in the request.
Resolution quite rightly requires all the Resolution accredited IFA’s to seek reaccreditation. The original accreditation was via examination; reaccreditation requires case history and CPD. The current years work to allow reaccreditation is a minimum of 36 cases or 150 hours per annum of family law work, plus 8 hours CPD. I am pleased to say that I have received my formal reaccreditation from Resolution.
This was the heading in my trade paper about the Solicitor’s Disciplinary Tribunal findings against Andrew Field of Kent Solicitors Field & Co. You need to be aware that the St James’s Place Partnership is not regulated as an Independent Financial Advisor. See link:
http://www.moneymarketing.co.uk/regulation/solicitor-struck-off-after-referring-clients-to-tied-adviser/1051906.article76. Claim chasers look at pensions and divorce
I suppose it had to happen but it does reinforce the need for you to seek independent, ideally Resolution accredited, pension advice in most cases. If you don’t think this is a problem click on the link:
can have advantages but also many disadvantages, not least the “income gap”. The following link is to a technical article that I have had published on this matter. See link:
http://www.moneymarketing.co.uk/technical/financial-planning-case-studies/case-study-dividing-pensions-after-divorce/1051486.article74. Pension accrual outside of marriage/relationship
At a recent family law conference I asked a specific question concerning this issue. The conference agreed that there is no case law that adequately covers this situation.
When considering pre or post marital agreements, it is very important that a pension report is requested so that full benefits accumulated outside of the marriage can be clearly identified and included properly in the agreement.
Duxbury calculations are generally accepted as a good rule of thumb to identify an offset figure for a future income. In the current economic climate it must be understood that Duxbury calculations are particularly optimistic, producing a lower offset figure than most other calculations.
Is where a member is in receipt of pensions over £20,000 p.a., they are able to cash in any other pensions, subject to tax. This is a new provision proving exciting in pensions and divorce as it can be used to release funds. However caution, even with an undertaking, may be required to stop such a member undertaking this action whilst divorce proceeding are under way.
I continue to see these 2 types of CEV related. The easiest way to consider CEV’s of money purchase and final salary schemes is to accept that they are totally unrelated.
The UK government has to ratify this by mid-December this year, which should create equalisation of annuity rates. There are still big questions as to whether this law will apply to occupational pension schemes and cash equivalent values. The ratification has now taken place.
If there are delays, point out to the pension provider that where there are divorce proceeding they are to provide information within 6 weeks of receiving the request as per “the pensions on divorce etc. (provision of information) regulations 2000, regulation 2 (5) (b) si2000/1048”
There is no provision in pension law for an annuity provider to issue a transfer value but they have to provide a “cash equivalent value” to be used in matrimonial proceedings. It’s all in the question.
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.
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
Ignore at your peril! In a recent report, husband S2P CETV £106,382, wife S2P CETV £80,717.
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.
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.
These are invaluable and should be asked for every time. Unfortunately their cost seems to be increasing to around £380. Where the NHS pension scheme is the main pension scheme of both parties we are able to reduce our fixed fee report by £450 plus VAT if a pension credit calculation has been provided
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.
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.
Please click the link below to my article recently published in Money Marketing covering some basic issues in sharing pensions.
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.
A 65 year old man with £7,500 State Pension would need to use £175,000 of his pension fund to purchase a £12,500 annuity having done so he would be able to cash in the rest of his pension fund, for himself or his spouse, less tax
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
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.
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.
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.
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%.
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.
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. At January 2013 the prospect is that subtitution may be withdrawn.
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.
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.
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.
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