Pension Sharing Orders Explained

One of the aspects of financial remedy cases most likely to cause confusion (with good reason) relate to Pension Sharing Orders. 

In this article I will answer FAQs (relating to pensions in England and Wales only);   

1. Do I need a Pension Sharing Order?

The rights and wrongs of each case will vary hugely, and specific advice will be needed on a case-by-case basis.  In longer marriages, pensions are often valuable assets, and it is axiomatic that they would be shareable.

In general, if it is agreed one spouse's pension is to be shared, then it is an absolute requirement that a Pension Sharing Order would need to be made by the Family Court.

This is because the pension fund administrators do not have the power to share a pension without a Court Order directing them to do it.

This may not mean there is a need for physical attendance at Court or contested proceedings as in the right circumstances, an Order can be presented to the Court by consent of the parties.

2. Can I request a fixed sum is shared rather than a percentage of my pension?

Not as such. The applicable regulations provide only for a Pension Sharing Order to be made in terms of a percentage split.

During negotiation, valuations of pensions will be obtained, along with other useful and necessary information. From that information the idea of a fixed sum (if that is the basis for negotiation) can be re-expressed as a percentage.

You will need to be aware that valuations that have been produced during the negotiation process will be most likely quite old and therefore very different to the ultimate valuation that will be used by the pension scheme administrator when it comes to implementing the Pension Sharing Order (see below).

A pension is most often a 'live' investment that continues to accrue in value, whether being actively contributed toward by the pension scheme member or whether just by inflation, etc.

This presents something of a moving target, and if further pension contributions are to be made by one party during the course of negotiation, the percentage share can be argued to be reduced to reflect these contributions.

3. Will all my pension contributions after a Pension Sharing Order is made be shared with the other party?

Not all. Built into the regulations are different calculation/valuation dates that are very important as far as Pension Sharing Order implementation is concerned.

Firstly, there will be the actual date of the Court Order itself and the date the Order has been brought into effect (see 4.  below), is called the 'transfer day'. 

It is a misunderstood term as the transfer day is not the day the transfer of the pension share happens.

It is the date that the pension scheme administrators will use to establish the relevant benefits that have accrued in the scheme to re-value the fund.

This means that until the transfer day there may be the possibility of continuing contributions (i.e., made by salary deduction, etc) still being added on to the scheme.

However, additional contributions made by the pension scheme member after the order takes effect (see 4. below) will remain excluded from the final pension value on the next important date called the 'valuation day'.

The valuation day is the date chosen by the pension scheme administrators for the actual implementation. The day it happens in other words.

The valuation day is important because the relevant benefits in the pension will be revalued again to take account of any market fluctuations, i.e., inflation, etc, to the exclusion of additional contributions or salary accrual that has arisen after the transfer day above.

4. When does a Pension Sharing Order take effect?

A Pension Sharing Order will only take effect after the Decree Absolute has been granted and 7 days after the end of the time allowed for filing an Appeal has elapsed, whichever is the later.  Appeals in cases of Consent Orders are unlikely and it follows that the earliest date on which a Pension Sharing Order will take effect will usually be 28 days after the Order has been made, subject to the Decree Absolute having been granted. 

5. How long does it take to implement a Pension Sharing Order?

The applicable regulations provide the pension scheme administrators with a 4-month period to implement a Pension Sharing Order.

However, an important proviso to this is that the 4-month period only starts to run on the later of

(a) the date the Order takes effect (see above); or
(b) the time the pension scheme administrators receive all the relevant documentation they say they need to proceed with the implementation.

This will usually be provision of the sealed Court Order, provision of the sealed Decree Absolute but also any other documentation that they may require from either the existing scheme member or the spouse that is to receive the pension share as well as their fees.

6. Do I have to pay to implement a Pension Sharing Order?

It depends on the scheme.  If a scheme charges, the administrators will also need to receive their fees before they implement. These vary greatly from scheme to scheme.

Some pension schemes, particularly those in the public sector, can charge several thousands of pounds to implement a Pension Sharing Order and parties must be aware of the likely costs of implementing and decide who is going to pay. Some schemes will allow for the fees to be paid by deduction from the share to be made, others will not.

7. Can I still be made to share my pension if it is in payment?

A pension that is in payment (i.e., the scheme member has reached retirement under the scheme rules) can still be subject to a Pension Sharing Order.  It is often more expensive.

A point to note is that, because the scheme will revalue the relevant benefits in the pension fund on the day on which the Order takes effect (the 'transfer day' referred to above), where a pension has been in payment, it may well be that by the time the Pension Sharing Order is implemented, there may be a clawback of some of the pay-outs made from the transfer day until implementation, which can be many months later.  This is a point to note for negotiations and drafting of the Order.

8. What if my spouse dies before the pension sharing order is implemented?

Generally, if the Pension Sharing Order has taken effect, the pension scheme administrators will continue the implementation process.

If, however, a party dies between the period of the Pension Sharing Order being made and the date of Decree Absolute, the Pension Sharing Order itself cannot take effect.

It is common practice to add an additional clause into a Pension Sharing Order to specifically provide that if one of the parties dies after the Order has taken effect (ie after Decree Absolute but before the Order is implemented), there will be a specific agreement that the remaining party who is the member of the scheme will have the consent of the personal representatives of the deceased former spouse to apply to vary or set aside the terms of the Order under Family Court Rules. 

The wording is very specific and specialist advice would be required. If that is not provided, if there is a death before the Pension Sharing Order is implemented then it may follow that there is an enforceable pension share, and it is important to ensure that any pension credit is not simply lost.

9. I have a Pension Sharing Order, but they will not let me join the fund, why? 

Some pension schemes will allow a spouse to join the fund as a new member in their own right. Indeed, some funds insist on it. Other schemes will not allow the spouse to join and will insist they make arrangements with another fund to receive the value or the transfer. This ideally needs to be looked at carefully prior to the Pension Sharing Order being made so documentation can be fully completed and there are no delays later on. 

10. Who is responsible for sending the Pension Sharing Order to the fund? 

The court when making the Order, will generally also direct one party (usually the party representing the scheme member) to serve the documents on the fund. It is important it is not left, and it is in the interests of both parties to make sure this has been done.

Implementation of Pension Sharing Orders can be quite complicated, and I hope that this has helped in breaking down the key issues that generally arise.

As to whether a Pension Sharing Order is suitable for your case, this will require specific advice and we at Giles Wilson will be happy to consider any enquiry.