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Pensions on divorce - the not so clean break for pension schemes

Rachel Evans looks at the administration difficulties for UK occupational pension schemes caused by the new legislation coming into force at the beginning of December 2000.

The pension sharing provisions which came into force from 1 December 2000 further encourage the "clean break" approach to dividing assets on divorce - but regrettably introduce another layer of complexity for pension schemes.

Scheme trustees need to make decisions and take action to be ready for their first divorce information request and sharing order:

Policy decisions for trustees

  • Will you require members to provide medical evidence?
  • How much will you charge members and spouses, and when?
  • Will you allow internal transfers for ex-spouses as well as external transfers?
  • If you will allow internal transfers, what type of benefits will you offer the ex-spouse and on what terms

Procedural changes for trustees to consider

Are you ready to

  • update your scheme rules to cover divorce next time an amendment is made?
  • revise your scheme booklet - and redesign it if internal transfers are on a unique basis?
  • provide all the necessary facts and figures in response to information requests?
  • calculate cash equivalent transfer values in the time allowed?
  • action earmarking orders as well as sharing orders?
  • update your administration systems to handle debits (and Inland Revenue maxima) and credits?
  • ask your AVC provider to share accounts or policies for individual members?
  • implement external transfers without the ex-spouse's consent?
  • check that a sharing order is operable?

Timescales - and fines

If trustees are not prepared for action, they may find themselves facing substantial OPRA fines for failure to meet timescales (and failure to notify OPRA of the problem). The timescales will be onerous for any scheme that is not prepared. Broadly, they are:

providing initial information

  • 1 month from date of request if no transfer value required (i.e. requests from the spouse), otherwise the earlier of
  • 3 months or
  • 6 weeks in some circumstances or
  • any other date specified by the Court

providing further information and setting out implementation requirements

  • within 21 days of the pre-order notification

notifying parties that the order is inoperable

  • 21 days

implementing the order

  • 21 days to inform member and spouse of outstanding information
  • 4 months from the start of the implementation period notifying parties that the order has been implemented
  • 21 days

Pension sharing on divorce is a complex topic - for further information and advice contact your usual Barnett Waddingham consultant or Nilesh Dodhia or Rachel Evans.

Rachel Evans, December 2000.