Pensions: What information you need, and how to understand Pensions Jargon on Divorce or Dissolution of a Civil Partnership
It has long been the case that pensions stand as one of the most complex elements of a financial settlement between parties that are going through a divorce or dissolution. Even understanding the lingo can be difficult, let alone how to reach an adequate and fair settlement in the context of the relationship as a whole. As lawyers we are generally not pensions’ advisors, and indeed will refer to you specialist advisors for exactly that reason. Please do take heed of being pointed in a specialist’s direction, it is so important that you know where you stand and the ins and outs of your circumstances. As for this lawyer’s two penny’s worth here are some basics to begin with.
The beginning: The State Pension
In most circumstances, both parties will have a State Pension. This current scheme was set up by the government in 1948 and the amount received is based upon the contribution by the party during the course of their adult life by way of National Insurance. For those married persons that have not worked, the state pension may be calculated upon their spouse’s contributions or others can gain credits which contribute towards their state pension ( such as those registering for child benefit for a child under 12, with it having been up to 16 previously).
In addition there have been varying terms throughout the years for additional contributions that people can have made voluntarily to these schemes which have been known as Graduated Pension/Graduated Retirement Benefit ( up to 1975), State Earnings Related Pension Scheme (SERPS) which was a scheme that ran from 1978 to 2002, and more recently the Second State Pension (S2P) which was introduced in 2002 which is otherwise known as the Additional State Pension. This option is not available for those reaching pension age after 6 April 2016, for who these additional schemes are not available.
Now I hear you ask, how do we find out this information for what we both have? The answer is Department of Work and Pensions (DWP) Form B19/B20 that will give the outline of this information and if necessary further questions can then be asked. In terms of whether you can share the basic state pension with your estranged spouse or partner, no you cannot but that does not decry that each parties’ income from such schemes must be considered. As for any additional contribution to the state scheme, information will need to be gathered from the DWP to establish what if any contributions have been made and if possible a Pension Sharing Order can be made to share one spouse’s benefits with the other if it is beneficial in the circumstances to do so.
So what is a Pension Sharing Order?
Pension Sharing Orders (PSO) were introduced in 2000 and is an order made upon financial settlement of financial matters between parties dissolving their partnership or divorcing their marriage. There is also another type of order called a Pension Attachment Order which is of older type of arrangement and becoming increasingly less popular nowadays.
PSO’s effectively lift a proportion out of one parties’ pension ( not available for a basic state pension) and provides it to the other spouse/partner for the purposes of providing that person with a share of the pension as it was valued at that time. Sometimes this share can be kept with the same pension provider, other times it cannot be kept there (or the receiving party may be advisable to hold it elsewhere) and it can be moved. This information as to what is possible can be obtained via a pension inquiry form and in most circumstances a solicitor will send this off as an information gathering exercise in respect of non-state pensions you may have, or request their counterparts for your spouse/civil partner to do so in respect of their pensions.
So what other types of pension are there?
Public Sector Schemes
In short these are a type of occupational scheme for those that work within the public sector, such as Military, Police, NHS or Fire Service. These are schemes that are final salary or defined benefit schemes and many having varying versions of the scheme, depending when the pension was begun. Because of this often pension experts are needed for guidance as to the lump sums and other benefits and commendations that might have an impact on the pension benefit.
These are pensions taken out in the workplace, set up by employers for their workers. In most circumstances both employer and employee make contributions but this may not historically always have been the case. Often these schemes have widows pensions available too ( a right that may be lost on divorce) and there are various different ways that the beneficiary of the pension may receive the income and benefits thereof, which all need to be investigated upon divorce to ensure the true value is understood.
These are pensions that effectively anyone, employed or unemployed can take out to provide for them upon retirement. There are various different types, including Stakeholder Pensions and Self Invested Personals pensions (SIPPs). Whilst these tend to be the most straightforward, there can be some characteristics of these types of pensions that impact on the basic value that might be given. Therefore taking a basic CETV at face value may not always be appropriate and further investigation and advice may be necessary.
Pension Protection Fund
This is effectively a scheme set up in 2005 to compensate those that had benefits with pension providers that effectively became insolvent. Schemes must have a minimum of 12 members to qualify and there is no pension protection fund for those in public sector schemes.
So how do I gather information about my Occupational, Personal, Public Sector or Pension Protection Fund Pension?
First thing first, request a CETV. This is available with all schemes but the time to obtain the figure can be lengthy. Therefore it is best to gather this information sooner rather than later for disclosure purposes.
Your solicitor is then likely to use a Pension Inquiry Form to gather further information and then has the opportunity to raise questions of the pension provider themselves or via an actuary if further information is needed.
Once disclosure has occurred it is hoped then that all the information is available to help the parties reach a fair and fully informed agreement as to how matrimonial finances will be determined.
What happens when everything is settled or a court order has been made?
If a pension share is to be agreed, the agreement/determination by the court will need to be drawn up into an Order. Along with the Order a Pension Sharing Annex will need to be drafted to effectively provide instructions to the administrator. Once sealed by the court, a Pension Sharing Annex is submitted to the pension provider to carry out the pension share and administer the pension accordingly.
Pensions are complex and variegated in their nature. Do seek the advice of specialist family lawyer if trying to resolve your matrimonial or civil partnership finances but also please consider seek appropriate specialist financial advice regarding the pensions at hand once you have the basic information available.
Helpful guidance can also be found from the Family Justice Council entitled “Sorting out Finances on Divorce”.
Author: Nardia Tribe