This article originally appeared in Money Marketing magazine. We thought the theme might be of interest to our readers, from both a financial and legal background. Many thanks to Richard Jacobs for his kind permission to re-publish the article.

 

My client having received a pension share is now refusing to give the pension company her details believing that the longer she delays the situation the more money she will receive. What can I do?

 
There is a lot of confusion surrounding this issue fuelled by many errors being made by insurance companies and pension schemes alike. The situation is very clear, once a pension sharing order is made it is issued with a copy of the decree absolute to the pension scheme. 21 days after receipt of the order the transfer day is created. The definition of transfer day comes from the Welfare Reform and Pensions Act 1999 part 4, sections 29 and 31. It means “The day on which the relevant order or provision takes effect”. Further confirmation of this point can be identified from the Pension Ombudsman Determination of Shepherd v Air Products Pension Plan.

The Pension Ombudsman Determination related to Mr Shepherd whose pension was in payment. Although not unduly delayed by the time the pension sharing order was implemented Mr Shepherd had received several additional months pension, which the pension scheme needed to reclaim off Mr Shepherd for the period between the date the pension sharing order took effect and the date his pension was reduced being the implementation date. There are some interesting cautionary notes in the Determination but in effect The Pension Ombudsman confirmed the situation that the pension sharing order took effect from the transfer day.

Regardless of what your client does the pension sharing order has been issued on the pension scheme and therefore the benefits will be crystallised 21 days following receipt of the order. For a Money Purchase Scheme a valuation should be undertaken on that day and it is that valuation that will be used later. For Final Salary Schemes the benefits accrued to that date must be re-valued and a new CETV calculated and it is this value that is subsequently shared. All contributions and additional benefit accrued until the transfer day is taken into account for sharing. If the transfer day is correctly adhered to then any future contribution or accrual after this day should be ignored.

In not providing the pension scheme with information they are unable to create the implementation date. This is the date when the pension scheme has received all the necessary information, after receiving the pension sharing order and if necessary charges, to begin dealing with any pension credit. The pension scheme has 4 months from the implementation date to put the order into affect. Failure to do so can result in substantial fines on the pension scheme.

Interestingly schedule 5 of the Welfare Reform and Pensions Act 1999 allows pension schemes to discharge their liability for a pension credit without the consent of the member.

Unfortunately experience is suggesting that many pension schemes, particularly insurance company personal arrangements, are not dealing with the discharge of the pension credit in the correct manner. It often takes several months to obtain the necessary information and for implementation of the credit to take effect. What often happens is that a new valuation is undertaken at that time and the appropriate share applied against that later value. This is incorrect as further contributions/accrual could have happened under the scheme and the member of the pension scheme could be severely disadvantaged in this situation. It is important that everyone involved with pension schemes should be aware of the transfer day and the need for the valuation at that time.

It is important that you stress to your client that under law by using the delaying tactics she will not be receiving any additional benefits and may well end up having her benefits moved to an arrangement not suitable to her. In simple terms if I was acting for your client's former husband I would be advising the pension scheme to discharge their liability immediately by transferring any credit out of their scheme into another arrangement. Naturally I would make sure that the correct value at the previous transfer day is used.

With the new pension simplification legislation, it is possible to take benefits from a pension scheme at any time from age 50 (55 in 2010) without having to cease employment or retire. Interestingly the application of the transfer day applies to this situation in that the pension sharing order is deemed to be in effect from the transfer day and therefore the pension scheme, if it acts correctly, is restricted on dealing with any benefits until final implementation. It is therefore in everyone’s interest that implementation of the pension sharing order is dealt with as quickly as possible. On the basis the order is dealt with correctly there can only be disadvantages by applying delay tactics.

Richard Jacobs A.C.I.I.

Chartered Insurance Practitioner and Resolution Accredited IFA Divorce Specialist

Richard Jacobs Pension & Trustee Services Ltd

01782 557800 richard@jacobs-pensions.co.uk