Implementing a pension sharing order on divorce

Where a client will benefit from expert input here is assessing the investments to see if there are going to be any liquidity issues and helping them come up with a disinvestment strategy.

The best example here is a self-invested personal pension holding a commercial property.

I am still surprised to see cases cross my desk where the scheme is mostly tied up in property and there is no plan for raising cash.

In cases where the property is the main asset, it is strongly worth asking the client (or their solicitors) if a PSO is appropriate.

If you are advising the party who will receive the transfer (also known as a ‘pension credit’), there is a different challenge, specifically trying to ascertain how much they are likely to receive.

There are regulations that specify what information a pension provider can give and to whom.

Unfortunately, they do not require the provider to give a valuation of the scheme to the spouse/civil partner.

Again, note that the exact value will not be confirmed until later, but if this is information that you need the best approach might be to see if the member is willing to provide it voluntarily.

It is also worth considering the impact on lifetime allowance protection.

For the member, they can potentially lose primary protection or individual protection if their total pension funds drop below a certain level.

If either party dies, the order must still be implemented.

If they have enhanced protection or fixed protection, any contributions will revoke the protection. However, they might want to rebuild their pension after the PSO, so may choose to revoke.

If the person receiving the credit has enhanced protection or fixed protection, the pension credit will have to be transferred into an existing pension scheme, otherwise they will lose the protection.

If the member’s pension was in payment, and it came into payment after April 5 2006, the spouse/civil partner will be able to apply for a lifetime allowance enhancement factor. 

They might not need it, but there is no harm in applying for it. They have five years to do so. The member, however, does not get any of their lifetime allowance back.

Court order comes into effect

Once the couple have been to court, settled their affairs and been granted a divorce, the next milestone in the pension sharing process is the 'transfer day'. 

This is later of two dates – the date of the final order for divorce (previously known as a decree absolute) and 28 days after court order was granted – and it is important as it is the day that the PSO legally comes into effect.