Pension sharing on DB scheme on divorce

[melonfool]

Hi

This is a very specific problem and I was wondering if anyone here could point me to something to read up on it.

My friend is going through a divorce where the pension is the only asset. There are three pensions, two are DB in the public sector.

The offer is that she gets 61% of the DB scheme.

Three questions:

1) am I likely to be able to find the scheme rules online? (I'd rather not say openly which scheme it is)
2) the actuarial report says she has to move the money to her own personal pension (this is the bit she is asking me about, of course I will suggest a SIPP and Vanguard) but how do we find out if there is any scope for her share to remain in the DB scheme and her to draw it as if she were a member - can this ever happen, I thought it did, but could it be down to the scheme rules per scheme maybe?
3) if she does take the money out to her own scheme, does he have to do that as well? I am working up a case for her to get a larger share as her moving the money out will mean it is less secure than the money he retains in the scheme (I know she is getting 61% already but that is for other reasons, this case has not been made)
4) if she really MUST move the money out, does she have to take the financial advice under the rules on DB schemes, given she will have a court order saying that is what must happen/the scheme rules insist that it happens? This could cost up to £6k I understand and as the pension (/s) is the only asset she has no cash to pay these sorts of sums.

Many thanks for any insights or signposting to any resources I can check. The actuarial report is incredibly long!

Mel

[Chrysalis]

Mel, there is a lot of information, including scheme rules, about the NHS pension scheme on the website.The USS scheme (not really a public sector scheme) has a lot less useful information publicly available. Obviously they may not be the ones you are after but presumably your friend has a legitimate reason for requesting a copy of the rules or information about where she can find them.
My understanding was that a common arrangement for public sector DB sharing on divorce is to split the membership and effectively give the spouse their own bit of it. I thought the unfunded schemes generally don’t allow (or can’t allow) cash transfer out. If your friends pensions are LGPS then they are somewhat different as they are funded schemes and may not permit the spouse to have a separate membership, but rather insist on buyout.

Is it possible that the report does take the loss of the guaranteed benefits into account when calculating the 61%?
Who has done the calculation and what qualifications do they have?

[richfool]

2) the actuarial report says she has to move the money to her own personal pension (this is the bit she is asking me about, of course I will suggest a SIPP and Vanguard) but how do we find out if there is any scope for her share to remain in the DB scheme and her to draw it as if she were a member - can this ever happen, I thought it did, but could it be down to the scheme rules per scheme maybe?
3) if she does take the money out to her own scheme, does he have to do that as well? I am working up a case for her to get a larger share as her moving the money out will mean it is less secure than the money he retains in the scheme (I know she is getting 61% already but that is for other reasons, this case has not been made)
4) if she really MUST move the money out, does she have to take the financial advice under the rules on DB schemes, given she will have a court order saying that is what must happen/the scheme rules insist that it happens? This could cost up to £6k I understand and as the pension (/s) is the only asset she has no cash to pay these sorts of sums.

Melonfool, If it is of any help, I know of a couple who divorced when his final salary occupational (DB) pension was in payment. The divorce settlement proposed a given percentage split which was agreed by the both husband and wife and when the divorce order was issued, the employer's pension dept split that agreed percentage off from his "pot/fund" and immediately calculated a pension for her from the same (employer's) scheme. His pension in payment was reduced accordingly by that percentage.

[melonfool]

Mel, there is a lot of information, including scheme rules, about the NHS pension scheme on the website.The USS scheme (not really a public sector scheme) has a lot less useful information publicly available. Obviously they may not be the ones you are after but presumably your friend has a legitimate reason for requesting a copy of the rules or information about where she can find them.
My understanding was that a common arrangement for public sector DB sharing on divorce is to split the membership and effectively give the spouse their own bit of it. I thought the unfunded schemes generally don’t allow (or can’t allow) cash transfer out. If your friends pensions are LGPS then they are somewhat different as they are funded schemes and may not permit the spouse to have a separate membership, but rather insist on buyout.

Is it possible that the report does take the loss of the guaranteed benefits into account when calculating the 61%?
Who has done the calculation and what qualifications do they have?

Hi

Thank you for responding.

I will do a search for the scheme rules, I should have done that. I think they are probably a matter of public interest so should really be available. Whilst, yes, she does have a legitimate reason for asking for them were she to phone up, she won't do that (she panics as soon as I just say 'pension'). She could get her solicitor to ask the other party, but then there will be two solicitors involved in something we could probably do for no cost, hence me looking for them.

It's none of those schemes, it's a very small scheme, I will try to find out if it is a funded one, that is a good point. I suspect, from what you say, that it is funded.

I also gathered that it was common for pension to be shared and the ex-spouse to become a member in their own right and I think this would be vastly preferable. Apart from anything else, it is far easier to understand than having to move the money and find a host account and then find an investment and then be dependent on the whims of a market you have zero understanding of. I mean, she doesn't understand the DB scheme, but she doesn't need to understand that.

"Is it possible that the report does take the loss of the guaranteed benefits into account when calculating the 61%?"

It's not mentioned. There is a section on security of the scheme (each scheme), but I don't think it is taken into account because he goes on to talk about how he cannot make any comment on this as he (quite rightly) does not know where the future investment will be made.

The 61%, plus 100% of the DC scheme (which isn't very much to be honest), is to take into account that he can continue to contribute to and gain benefits in an employer funded scheme and she cannot, plus she is older than him and she has (apparently!) reduced life expectance. And, with their being no other assets (no property) there was nothing else to settle upon her, so this buys out part of the spousal maintenance. She also does not have full state pension and he does.

All this results in a projected pension, including state pension, of c£16k pa.

The report was done by an actuary who was commissioned by a firm called EPS who were commissioned by either her or the other party solicitor.

Mel

[melonfool]

Found it. It is, of course, practically incomprehensible!

"Following the making of a Pension Sharing Order the Trustees shall, within the Implementation Period, pay the amount of the Ex-spouse's Pension Credit, as calculated in accordance with General Rule 9.6, to the person responsible for a Qualifying Arrangement with a view to acquiring rights under that arrangement for the Ex-spouse if:
(a)
the person responsible for that arrangement is able and willing to accept payment of the credit, and
(b)
General Rule 9.3 or 9.4 applies."

(9.3 and 9.4 just talk about consent having been given, 9.6 is how they calculate the Pension Credit which implies it is a transfer out I think?).

It is this phrase I'm unsure of: "with a view to acquiring rights under that arrangement for the Ex-spouse"

This does not sound like 'paying the money into a personal pension or SIPP', does it? 'Acquiring rights' sounds like something else.

Any thoughts?

Mel

[Alaric]

It is this phrase I'm unsure of: "with a view to acquiring rights under that arrangement for the Ex-spouse"

This does not sound like 'paying the money into a personal pension or SIPP', does it? 'Acquiring rights' sounds like something else.

How old is the legislation? If it's been around for many years, then those drafting it may have assumed the existence of defined benefit schemes or personal pensions with guarantees which could accept the transfer. Perhaps you need the insight of a lawyer with recent experience of these matters, who will understand how these matters are handled in the context of what's now generally available.

If she isn't allowed to retain membership of the husband's scheme and doesn't have an employer with a scheme capable and willing to accept transfers in, what option are there other than a personal pension of some form (which includes a SIPP as a form of personal pension)? So no available guarantees other than putting the lot into ITs and relying on the IT managers to stabilise the income.

[melonfool]

It is this phrase I'm unsure of: "with a view to acquiring rights under that arrangement for the Ex-spouse"

This does not sound like 'paying the money into a personal pension or SIPP', does it? 'Acquiring rights' sounds like something else.

How old is the legislation? If it's been around for many years, then those drafting it may have assumed the existence of defined benefit schemes or personal pensions with guarantees which could accept the transfer. Perhaps you need the insight of a lawyer with recent experience of these matters, who will understand how these matters are handled in the context of what's now generally available.

If she isn't allowed to retain membership of the husband's scheme and doesn't have an employer with a scheme capable and willing to accept transfers in, what option are there other than a personal pension of some form (which includes a SIPP as a form of personal pension)? So no available guarantees other than putting the lot into ITs and relying on the IT managers to stabilise the income.

Which legislation are you referring to? The actuary report mentions loads of different legislation. The pension scheme rules seem to have been updated in 2010.

It may well be that the scheme had that assumption I guess.

She cannot afford any more legal (or financial) advice - with no assets, no job (so no employer scheme, current or deferred) and a projected pension of £16k she's really not going to manage to lay out a few k on advice.

Re the SIPP, yes, I will be making broker suggestions for her and trying to get her to understand asset classes and investment trusts etc so she can choose where to put the money.

This is all very scary for someone with no understanding at all of investments or pensions. (her, not me)

Thanks!

Mel

[Chrysalis]

If she has reduced life expectancy due to illhealth and is already above SP age, it might actually be a better deal to buy an annuity from her share of the pension than her share of the DB pension, since that could take into account her medical history. Would also be much simpler for her to understand.

I’ll see if I can find anything else useful.

[melonfool]

If she has reduced life expectancy due to illhealth and is already above SP age, it might actually be a better deal to buy an annuity from her share of the pension than her share of the DB pension, since that could take into account her medical history. Would also be much simpler for her to understand.

I’ll see if I can find anything else useful.

Thank you - I have no idea where reduced life expectancy came from, she is a hypochondriac so when they asked if she was in good health she listed all the millions of things she imagines are wrong with her, none of which are real, or at least not more than a pretty ordinary thing at her age (hiatus hernia, back pain, that sort of thing).
There has been no actual medical report, she says her GP 'refused to cooperate'

She's not over SP age, good few years to go. She can't work due to her [imagined] disabilities. She has never really had a job. To be fair, she supported him a lot, bringing up the family while he was away all the time. She had no need to get a job in theory, and in theory they should have been enjoying a nice retirement together in about ten years, but he found a younger model and off he went.

I have wondered about an annuity as it would at least give her security of how much she would have coming in and, as you say, be far simpler for her. She is over 55 so could do that soonest, though if she takes the 25% tax free as she seems to intend, to reduce the mortgage, there will be very little pension left. The DC scheme is £125k, the DB scheme of which she gets 61% is c£340k. I mean, it's not a pittance (it's probably more than I'll end up with) but it's not loads.

She does have spousal maintenance for now. I'm not sure what the plan is for that in terms of how long it goes on for - I think until he reaches SP age (he is younger) though I'm not sure of the effect if he decides to work past SP age.

If we accept that she has to take the money, which it does look like she will as it is a funded (and in deficit) scheme - what do we think about the obligation to take financial advice? This law was put in place to prevent people taking the DB schemes and investing unwisely (in a Lamborghini) but if she has no choice but to take it out surely it's unreasonable for the law to then tell her she has to take advice on whether to take it out or not?

Mel

[genou]

If we accept that she has to take the money, which it does look like she will as it is a funded (and in deficit) scheme - what do we think about the obligation to take financial advice? This law was put in place to prevent people taking the DB schemes and investing unwisely (in a Lamborghini) but if she has no choice but to take it out surely it's unreasonable for the law to then tell her she has to take advice on whether to take it out or not?

Mel

PAS don't mention it. Which is not conclusive, but it seems a reasonable position that she need not pay. They are free to talk to.

https://www.pensionsadvisoryservice.org ... on-sharing

[Chrysalis]

@genou I had forgotten about the pensions advisory service - good idea, they may well be able to help.

You mention mortgage, I thought there were no other assets? What is her housing situation?
If she is not working she will presumably need to claim benefits (does she do so already?) and may have to seek work. She presumably also has time to improve her state pension entitlement. In these circumstances she shouldn’t take withdraw from the pension or buy an annuity before state pension age as it will affect her entitlement if she does. In which case it will just be a matter of finding a low cost pension provider to take the money for the time being. You mentioned a total income with state pension of 16k, I wouldn’t actually call that small (I see she’ll have a pension pot of over nearly £500k). I’d expect the CETV to be up to 30 times the annual pension value, although they do vary. As far as financial advice goes, I don’t know if it’s required but TPAS may be able to help. But the principle behind it is important - it’s there to ensure people understand how the cash offer compares with the value of the defined benefits - and that is actually quite pertinent. How does her cash offer compare with the pension value?

[melonfool]

The house is 95% mortgaged, they literally bought it a month ago, they have been separated three years. I don't really understand the mechanics of this to be honest. It seems insane. They own it jointly in 50% shares and pay half the mortgage each currently.
She lives in it, he does not.
There was no previous property, so no equity deposit etc (they rented before).

The mortgage is very high, it's about half her maintenance payments. She is not entitled to any benefits (unless she can convince anyone she is actually disabled which I'd say that was unlikely) and she is not in a position to work (I mean, she just won't consider working).

She has spousal maintenance as long as that continues.

The projected pension from the actuary, including SP, is £16k. I don't think that is very high. It's way less than her maintenance payment. Her pot will not be £500k, it will be the numbers I posted above, those were the cash values the scheme/s have proposed. The estimate of the pension is from the actuary.

There is a potential she could rent out a room in the house for income but I don't personally think that will bring in as much as she expects.

She is buying back SP years (which she described to me as 'costung a huge sum', which when pressed turned out to be £60pm. )

But she really has no money for financial advice. I was just going to tell her to use a SIPP and but Vanguard.

I will call PAS later in the week.

Ta
Mel

[melonfool]

I wouldn't call the house an asset by the way, not right now, it's a liability.

She seems to be divorcing him and gaining debt. Mad.

Mel

[Chrysalis]

Ok I was rounding up the pension sums a bit, 125+340 = £465k. That’s a pretty hefty pension pot imo by any standard. I think she’s probably going to be ok

Does she need to sell the house and find something cheaper?

It sounds a difficult situation to help with. good luck.....

[Alaric]

That’s a pretty hefty pension pot imo by any standard.

It's probably still allowed to raid the pension asset for cost of advice. In the days of commissions there was always something for the adviser.

[melonfool]

Ok I was rounding up the pension sums a bit, 125+340 = £465k. That’s a pretty hefty pension pot imo by any standard. I think she’s probably going to be ok

Does she need to sell the house and find something cheaper?

It sounds a difficult situation to help with. good luck.....

It's not £340k it's 61% of £340k. But yes, I did point out it's more than my pension will be.

The two issues are:

Does she have to move it out of the scheme it is in (I think she does, but I have asked the scheme for more detail on that) and;
Does she really need to pay for financial advice which is mandated on moving a DB scheme, given that she has no choice but to move it anyway?

She only just bought the house, literally moved in a few weeks ago, it's all part of the divorce agreement. I don't understand the house bit at all, it's non sensical. I'm just offering to understand the pension bit.

Mel

[melonfool]

That’s a pretty hefty pension pot imo by any standard.

It's probably still allowed to raid the pension asset for cost of advice. In the days of commissions there was always something for the adviser.

That is a possibility if she needs advice on what to do with the money. But why pay for advice on *whether* to move it when the move is mandated by the scheme rules and a court order?

Mel

[Chrysalis]

Re paying for advice - has anyone actually said this is needed? It would be the DB scheme that would require (or not) evidence that advice has been taken.

I think the scheme can insist that the pension credit is taken as cash transfer (ie the option to have pension membership instead is a permitted but not mandated.) again, has the question actually been asked in writing?

I’d say the first port of call to answer the questions would be the schemes. Then TPAS, if the answers aren’t satisfactory. I’m not sure anyone here will be able to give a definitive answer!

[Chrysalis]

Ok so a bit of googling finds useful information on prudential and royal London websites, if you are prepared to say you are an advisor (so I haven’t linked to the websites).
Royal London say the pension transfer requirements to get advice do not apply, because the scheme member is not transferring out (and presumably the regulations are there to protect the scheme member).

[melonfool]

Re paying for advice - has anyone actually said this is needed? It would be the DB scheme that would require (or not) evidence that advice has been taken.

I think the scheme can insist that the pension credit is taken as cash transfer (ie the option to have pension membership instead is a permitted but not mandated.) again, has the question actually been asked in writing?

I’d say the first port of call to answer the questions would be the schemes. Then TPAS, if the answers aren’t satisfactory. I’m not sure anyone here will be able to give a definitive answer!

They have not responded to my email questions and their phone line is 9ppm, plus I am at work when they are available, but yes, I will follow up with them. I work from home on a Friday so might be able to do it then.

Good point that it is the scheme that requires the evidence, and your further point that it is not the *member* who is transferring out - that seems pretty clear then, she won't need to take advice on that aspect.

Thank you for that research!

Mel