Pension Sharing & Divorce

This guide is for all members of the local Government Pension Scheme (LGPS) who are either in the process of divorce or the dissolution of a civil partnership.

For many people, pension rights are one of their most important and valuable assets.

Until 1996 the only way pension rights could be taken into account when couples divorced was to offset their value against the value of other financial assets in the divorce.

Provisions brought into effect from 1 July 1996 (England & Wales), 19 August 1996 (Scotland) and from 1 December 2000 (all UK) allow divorcing couples two additional ways of taking their pension benefits into account. They are:

• Earmarking (as from 1996)

• Pension sharing (as from 1 December 2000)

Following the introduction of same sex civil partnerships in December 2005, the provisions which apply to divorcing couples were extended to couples upon the dissolution of a civil partnership.

The right to offset the value of pension rights against the value of other financial assets in the divorce settlement still remains an option.

It should be noted that earmarking could also be used in cases of judicial separation.

Disclaimer

This booklet gives general guidance only to assist you and your spouse in divorce, dissolution or nullity of marriage proceedings.

You are advised to take legal advice on the options available and the relevance of earmarking or pension sharing provisions.

The Avon Pension Fund will provide information to you at various stages during the proceedings.

You should note that all correspondence received by the scheme in connection with this process will be acknowledged in writing.

If you do not receive an acknowledgement, you should contact the Avon Pension Fund to ensure that your correspondence has been received.

Contact details for the Avon Pension Fund can be found here.

Divorce Proceedings

In cases of divorce, dissolution or nullity of marriage, the petitioner (either the husband, wife or partner) can make an application to the Court for a share of the matrimonial assets.

Once the application has been lodged with the Court, the date for the first appointment at Court will be made.

As the Scheme member, you will be required to supply a valuation of your pension rights under the Local Government Pension Scheme. This is because divorcing couples are required to disclose all their financial interests to each other and the Court. This will include details of those benefits under the Scheme which are shareable rights.

Obtaining information about benefits under the Local Government Pension Scheme if you are involved in divorce proceedings

The Court, will need information about your pension benefits and general information about the Local Government Pension Scheme in order to consider whether an earmarking or pension sharing order is appropriate.

Your spouse, or their solicitor, can only ask for basic information about the Scheme.

As the Scheme member, you are entitled to ask for information about the Scheme and your own personal benefits in the Scheme.

If you have not already made a written request in connection with forthcoming proceedings you should contact the Pensions unit to request a Cash Equivalent Value (CEV).

The CEV is the capitalised value of your pension benefits. It provides a convenient way of assessing the value of your pension in relation to your other assets.

You are, subject to certain exceptions, entitled to one free CEV per year for any purpose.

The charges that the Scheme will make, if any, for providing a CEV and for administering an earmarking or pension sharing order can be obtained from the Avon Pension Fund.

Additional information relating to divorces in Scotland

Scottish law uses the concept of ‘matrimonial property’. Pension benefits from part of the ‘matrimonial property’ and, unlike in the rest of the UK, it is only pension rights that have built up during the marriage that can be shared or be subject to an earmarking order.

In Scotland, a divorcing couple often make ‘Minutes of Agreement’ to settle as many issues as possible before going to Court. This allows them to reach their own decisions (with legal advice) about the division of the matrimonial assets.

If you and your spouse enter onto such an agreement, you must notify the Pensions Unit that you intend to share pension rights with you spouse.

Earmarking

What is earmarking?

Earmarking is a term used to describe special attachment orders that are made by the Court.

When an attachment or earmarking order is made, the pension still remains yours, but the Scheme is required to make some form of payment to your former spouse when your benefits become payable.

The Court can order that your former spouse receive one, or a combination, of the following benefits:

• All, or part, of your Local Government pension (this does not apply in Scotland)

• All, or part, of your Local Government lump sum retirement grant

• All, or part, of any lump sum paid in the event of your death

An order can also require you to exchange some pension for an additional lump sum retirement grant (this does not apply in Scotland).

The order will be sent to the Avon Pension fund who will acknowledge it within 21 days and ensure it is acted upon.

A copy of the decree or declaration of divorce, nullity of marriage or judicial separation including, in the first two cases, confirmation that the decree has been made absolute, should be sent to the Pensions section.

Changes

As it may be many years between the divorce and the benefits coming into payment, it is important to be aware of the following changes:

• An earmarking order against pension payments, but not lump sums (unless the order directs otherwise), will automatically lapse if your former spouse remarries or enters into another civil partnership, and the full pension will be restored to you.
• Pension payments to your former spouse lapse on your death

• Your former spouse must inform the Pensions Unit of any change of address, any change of name by marriage or deed poll and, where the earmarked pension is in payment, any change of bank account details.

• If you transfer your benefits to another scheme, the earmarking order will transfer. The Pensions Unit will, within 21 days of the transfer, inform your former spouse of any transfer.

The Avon Pension Fund must be informed of the death of either yourself or your former spouse

Paying the earmarked pension

The Avon Pension Fund will contact your former spouse when you apply for payment of your pension benefits or, if the lump sum payable on death has been earmarked, when you die.

The Avon Pension Fund will check that the earmarking order is still valid and, if so, will arrange for payment to be made to your former spouse.

Pension Sharing

What is pension sharing?

Pension sharing was introduced on 1 December 2000 as a measure to give divorcing couple a ‘clean break’ settlement and to overcome some of the inherent problems associated with earmarking orders.

Pension sharing is similar to earmarking in that the Court will serve a Court Order on the Scheme. However, whereas an Earmarking Order means that your former spouse has to wait for you to retire (or die) before becoming entitled to the earmarked pension (or lump sum), a Pension Sharing Order instructs the pension scheme to share your benefits immediately with your former spouse, by an allocated percentage (up to 100%).

This means that your former spouse will be able to draw a pension in their own right from age 65 whether you have retired or not and also means that the benefits would not be lost upon your death or if they remarry.

Your former spouse’s benefits will be totally separate to your own benefits.

How will a pension share affect you?

Pension sharing order before retirement

Your pension, lump sum retirement grant and any subsequent spouse’s benefits, will be reduced by the percentage allocated to your former spouse. For divorces in Scotland, the Court will specify either a percentage or a monetary amount.

This reduction is known as a ‘pension debit’ and will normally be calculated within 4 months of the pension sharing order being received.

At retirement, the ‘pension debit’ will be increased in line with the rise in the Retail Prices Index. i.e. it will be increased in line with the cost of living between the date the ‘pension debit’ was first calculated and the date that your pension becomes payable.

This re-valued amount of ‘pension debit’ will then be deducted from your total benefits.

On your death, if you have remarried, a pension share will reduce the widow(er’s) benefit payable to your new spouse. However, if you have dependant children, any child’s pension payable will not be reduced because of a pension share.

Rebuilding your lost pension

If you benefits have been reduced on account of a ‘pension debit’, it may be possible for you to rebuild some of the pension rights that you have lost.

You can do so by paying Additional Voluntary Contributions (AVC’s) or, provided you are under aged 64, by purchasing up to an additional 6 2/3 years membership in the LGPS.

Pension sharing order after retirement

The pension currently in payment will be reduced by the percentage allocated by the Court to your former spouse from the date of the pension share even if your former spouse is not yet due to receive the pension credit.

Benefits payable upon your death

Upon your death, if you have remarried, a pension share will reduce the widow (er’s) benefit payable to your new spouse.

However, if you have dependent children, any child’s pension payable will not be reduced because of a pension share. Any dependents pension will remain linked to your pension and the value of the benefits payable will be calculated as if the pension share had not taken place.

Transferring benefits

Avon Pension Fund will not accept a transfer if any part of the transfer relates to a Pension Credit arising from a divorce settlement.

If you area member of the LGPS, you may still be able to transfer your remaining benefits to another pension scheme or arrangement if you cease your current employment.

What will a Pension Sharing Order provide for your former spouse?

Normally, within 4 months of a pension sharing order being received, your former spouse will be granted pension benefits in the Local Government Pension Scheme in their own right. These pension benefits will be calculated from the amount of credit they have received from your pension and will be used to provide:

• An annual pension and, if you are not yet in receipt of your pension, a lump sum equal to three times the pension, payable from age 65 or, if later, from the date of the pension share, or

• Commutation of trivial benefits at pensionable age (if the ‘pension credit’ is very small it can be paid as a one off lump sum payment)

• Death Benefits – if your former spouse dies before their pension becomes payable, a lump sum equal to three times the annual rate of their pension will be paid to their estate. If your former spouse dies within five years following the date that their pension benefits become payable, a lump sum equal to five times the annual rate of their pension less the amount of annual pension already paid will be paid to the estate.

When the ‘pension credit’ benefits become payable, they will be increased in line with the rise in the Retail Prices Index. i.e. they will be increased in line with the rise in the cost of living between the date the amount of ‘pension credit’ was first granted and the date the ‘pension credit’ becomes payable.

Once in payment, the annual rate of the ‘pension credit’ will be increased each year in line with the rise in the Retail Prices Index.

There is no provision for early payment of benefits on ill-health grounds. However, in the case of serious ill-health (where life expectancy is less than a year) benefits will be payable.

‘Pension credit’ benefits do NOT provide widow (er’s) or dependents benefits.

Transferring Benefits

Your former spouse can opt to transfer the value of the ‘pension credit’ to another qualifying pension scheme or arrangement at any time up to one year before age 65, other than to another LGPS fund.

Avon Pension Fund will not accept a transfer if any part of the transfer relates to a Pension Credit arising from a divorce settlement.

‘Pension credit’ benefits cannot be combined with any other benefits your former spouse may have in the LGPS in their own right, i.e. as a result of being a contributor to the Scheme.

Buying additional pension benefits

Your former spouse is NOT able to make Additional Voluntary Contributions (AVCs) to the LGPS or purchased added years of membership in the LGPS in order to increase the ‘pension credit’ benefits.

Paying the Shared Pension

The Avon Pension Fund will advise your former spouse how to apply for the ‘pension credit’ benefits when the pension share is confirmed.

The pension, when paid, will be taxed (if appropriate).

As your former spouse’s ‘pension credit’ benefits are independent from your own benefits, a pension sharing order does not lapse should you die, or should your former spouse re-marry.

If your former spouse was to re-marry, and that marriage ends in divorce or annulment, the ‘pension credit’ could itself be subject to a pension sharing order.

When you are notified of the pension share you will also be informed of the appeals procedure to follow if you disagree with any decision taken when implementing the pension sharing order.