Although it is estimated that within 80% of marriages at least one party has a pension, a surprisingly high number of couples do not take into consideration the potential value when considering the division of assets on divorce. Whilst parties believe there are more pressing issues such as what happens to the family home, how bills will be met and arrangements for the children, the value of an NHS pension should not be underestimated.
The NHS Pension Scheme is one of the most lucrative pension schemes available, with considerably higher returns than provided by most private pensions and as such could be one of the most valuable assets when calculating financial division.
FIRST STEPS
- Seeking legal advice from an expert in marital finances in the first instance is highly advisable, as there are different types of NHS pensions. You can also obtain advice to meet your specific circumstances such as how the pension may be split or offset against other assets such as the matrimonial home.
- You will need to obtain the CETV (Cash Equivalent Transfer Value) from the official NHS Pension Scheme. This request can be made by the member or, with written permission, by their spouse or civil partner or the solicitor dealing with the case or at the court's request.
You should receive the CETV within 3 months (you may receive it sooner if you have notified the scheme of a court appointment or court order deadline but there may be a charge for expediting it). Bearing in mind the length of time it can take to receive your CETV, it is advisable to put your request in as soon as possible.
PENSION DIVISION
There are basically three ways to divide a pension
- PENSION SHARING ORDER
A Pension Sharing order on an NHS pension enables part of the member's pension to be divided for the benefit of their ex-spouse independent of the Scheme member, meaning that part of the member's pension is transferred into a separate pension pot in the other party's name and then each party has their own separate fund. The key benefit of Pension Sharing Orders is that they provide a clean break.
The Pension sharing order can only be implemented once the consent order is approved and decree absolute pronounced.
Considerations
If a Pension Sharing order is issued by the courts in relation to an NHS pension before the scheme member retires, it will create a Pension Debit that increases with the cost of living and is deducted from the total pension. On the other hand, if the Pension Sharing Order is issued after a scheme member retires, payments to the scheme member will be reduced in line with the amount of the pension the other party has received.
A Pension Sharing Order does not lapse the NHS pension payments on the remarriage of a former spouse or end if the other party dies as the funds are separate.
- EARMARKING
Earmarking Orders are special attachment orders, which the courts can make against benefits payable from the NHS Pension Scheme. The pension still remains that of the Scheme member, but the Scheme is required to make some form of payment to the former spouse directly from the member’s pension, such as part of the pension income each month once it is in payment, a lump sum (if the scheme provides for one), death benefit or Additional Voluntary Contributions benefit.
Considerations
Although Earmarking is an option, Pension Sharing is now more common because of its ‘clean break’ approach by providing the former spouse/partner with a pension in their own right. There is a significant risk the pension payment will end if the pension member dies.
- PENSION OFFSETTING
A pension is retained by the scheme member in exchange (or offset) for another joint asset such as equity in the family home which allows a clean break and may enable the other party to remain in the property. So, one party keeps more in pension and the other more in property. It will require an actuary to calculate the offsetting value.
Considerations
Capital and pensions are not like for like and so courts now prefer to keep them separate as recommended by the Pension Advisory Group (PAG).
The person forgoing their claim against their spouse's pension may regret the decision in the future as they may be left with no provision in retirement and their asset may not have increased in line with their ex-spouse's pension.
CONCLUSION
With each scheme having its own nuances to consider, and many variables to take into consideration such as whether the pension is already being drawn as income and the differing applicable pensionable ages of the various scheme (60yrs – 1995 scheme, 65yrs – 2008 scheme and 65yrs or state pension age, whichever the later - 2015 Scheme), it is important to ensure that appropriate advice is sought in this respect.
Our experienced solicitors are on hand to offer expert advice and guide you through the process every step of the way.
Call our Sheffield team on 01145517555
or book online Divorce & Family Law Solicitors - Acclaimed Family Law
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