University of Sheffield Pensions Scheme for Non-Academic Staff (1975)

Transcription

1 University of Sheffield Pensions Scheme for Non-Academic Staff (1975) A Guide to What Happens When Married Members Divorce and Civil Partnerships are Dissolved 1 April 2007 Prepared by: Ann Went Client Manager Date: 1 April 2007 MNPA is authorised and regulated by the Financial Services Authority

2 Contents Introduction... 3 Purpose of this Booklet... 3 Further Information... 3 Valuing the Pension Rights... 4 How is the member s pension valued?... 4 Requesting a cash equivalent transfer value... 4 How are pension rights treated?... 5 Offsetting... 5 Pension sharing... 5 Attachment orders (formerly known as Earmarking )... 6 Pension Sharing... 7 Attachment Orders Appendix Information about the member Appendix MNPA divorce charges for pension sharing and attachment orders University of Sheffield Pension Scheme (1975) for Non-Academic Staff: Active and deferred members Notes: Appendix MNPA divorce charges for pension sharing and attachment orders University of Sheffield Pension Scheme (1975) for Non-Academic staff: Pensioner Members Notes: Appendix Information for Implementation Page 2 of 21

3 Introduction Getting divorced or dissolving a civil partnership is a complex legal process. In the United Kingdom there are 3 legal jurisdictions, England and Wales, Scotland and Northern Ireland. This means there are different legal requirements depending upon where you live and in which country s courts you file your petition for divorce if you are married or dissolution if you are in a civil partnership. In particular, Scotland has a distinct legal system from that of England and Wales, and in this booklet we show some of the areas where Scottish law differs. What happens to pension rights as part of the divorce and dissolution processes can be equally complicated. Purpose of this Booklet This booklet aims to explain what may happen to a member s pension rights in the University of Sheffield Pension Scheme for Non-Academic Staff (1975) (the Scheme ) following a divorce or dissolution and answer some frequently asked questions. It will be relevant to you if your pension benefits or those of your spouse or civil partner may form part of the financial arrangements made through divorce or dissolution. The booklet also provides the information which the Trustees of the Scheme are legally required to give to the parties and their solicitors for the purposes of divorce and dissolution proceedings. Further Information This booklet supplements to the Trust Deed and Rules of the Scheme and the Scheme booklet for members. If you are a member of the Scheme, you will have received a copy of the Scheme booklet when you joined. MNPA Limited has been appointed by the Trustees of the Scheme as the administrator and this booklet is issued by MNPA Limited on their behalf. If you have any queries which are not answered by this booklet or you need to obtain a copy of the Scheme s Trust Deed and Rules or booklet for members, please contact MNPA Limited. The address is shown on page 11. Page 3 of 21

4 Valuing the Pension Rights Each of the parties to the divorce or dissolution proceedings will be asked to provide financial information in order for a financial settlement to be reached. This information will include the value of any pension rights. How is the member s pension valued? The value of the member s pension rights will be the amount of the cash equivalent transfer value available from the Scheme. In Scotland only that part of the cash equivalent transfer value which accumulated during the marriage will be assessed. A cash equivalent transfer value is a valuation of the member s pension benefits at a certain date. The transfer value shown has been estimated and is not guaranteed. The value may fall or rise in line with the way the funds are invested during the divorce or dissolution procedure. The transfer value does not include the value of any discretionary benefits that the Trustees may award in the future. The Trustees have the actuary s report on this topic, which the member may receive, free, within one month if requested. Requesting a cash equivalent transfer value A member may request a cash equivalent transfer value. Alternatively the Court may order that a cash equivalent transfer value is provided to it for the purpose of divorce or dissolution proceedings. A cash equivalent transfer value will only be provided to the member upon their request, or to the Court pursuant to its order. Most members are entitled to a cash equivalent transfer value free of charge once in every twelve months. There may be a charge if the member s pension is already in payment; the member is within 12 months of normal retirement age; the member has asked for this information at short notice; or the member has asked for a cash equivalent transfer value in the last twelve months The valuation of the member s pension rights is not at a current date. A valuation of the pension rights in the Scheme at any date within the last twelve months is acceptable to the Court in assessing the financial situation of a couple. The actual amount of the member s cash equivalent transfer value will be recalculated once a pension sharing order has been made and is being implemented. Page 4 of 21

5 How are pension rights treated? There are 3 ways in which pension rights may be treated in a divorce or dissolution settlement: offsetting; pension sharing; and attachment orders. Offsetting Offsetting has no effect on the member s benefits under the Scheme. Essentially what happens is that the Court takes into account the value of the member s pension benefits under the scheme and offsets the value of those benefits against other matrimonial or partnership assets when dividing the assets between the parties. This means that the member keeps their pension benefits in full and the former spouse or civil partner uses other assets to provide for their retirement. Pension sharing Pension sharing is known as the clean break approach. This is because when the Court makes a pension sharing order, it divides the member s cash equivalent transfer value under the scheme between the member and the former spouse or civil partner and transfers a proportion of the cash equivalent transfer value from the member to the former spouse or civil partner. This reduces the member s benefits in the scheme and creates a separate pension entitlement for the former spouse or civil partner to be paid at retirement. Because a pensioner does not normally have a right to a cash equivalent transfer value, their benefits are valued and a notional cash equivalent transfer value is calculated. The Trustees can choose whether the former spouse s or civil partner s entitlement is retained in the pension scheme or transferred to another scheme chosen by the former spouse or civil partner. In some rare situations, where they consider it reasonable, the Trustees may transfer the entitlement to another suitable pension scheme themselves; for example where they consider there is an undue delay in selecting a scheme to transfer to another pension scheme. The cash equivalent transfer value cannot be taken as cash. In England and Wales or Northern Ireland the pension sharing order must specify a percentage of the cash equivalent transfer value to be transferred to the former spouse or civil partner. It must not state a fixed amount. This percentage will be based on the valuation of the member s pension rights at the beginning of the process. The cash equivalent transfer value will be recalculated as part of the implementation of the pension sharing order and the amount of the actual cash equivalent transfer value shared may not be the same as the initial value supplied. Page 5 of 21

6 In Scotland the pension sharing order may state a fixed amount or a percentage to be shared. We will not implement a Court order stating a fixed monetary amount, or any formula attempting to achieve a fixed amount, unless it is issued by a Scottish Court. Attachment orders (formerly known as Earmarking ) An attachment order does not create a clean break between the parties and does not create a separate entitlement under the scheme for the former spouse or civil partner. An attachment order effectively earmarks a portion of the member s benefits (pension payments or lump sum benefits) for payment to the former spouse or civil partner. All the benefits remain in the member s name when an attachment order is made. An attachment order only takes effect when the member reaches pension age and becomes entitled to payment of their benefits under the scheme. An attachment order might, for example; order a member to commute part of their pension in return for a tax free lump sum at retirement, and require that all or a specified proportion of it must be paid to the former spouse or civil partner; or order that the former spouse or civil partner receives a percentage of the member s monthly instalments of pension (this does not apply in Scotland). The following pages answer questions often asked about how pension sharing attachment orders are arranged. Page 6 of 21

7 Pension Sharing Can any member have a pension sharing order made in respect of their pension rights under the Scheme? A pension sharing order may only be made in proceedings for divorce; dissolution of a civil partnership, and annulment of a marriage or civil partnership. It can be made in respect of pension benefits of active members, those with deferred pensions and those already in receipt of a pension from the pension Scheme. A pension sharing order cannot be made: if divorce, dissolution or annulment proceedings started before 1 December where there is already an attachment order in relation to the member s benefits under the Scheme. Only the member s rights or benefits under the Scheme which are shareable can be the subject of a pension sharing order. Appendix 1 states if the member s benefits under the scheme include any nonshareable benefits. How does a pension sharing order work? A pension sharing order specifies a percentage of the member s cash equivalent transfer value, which must be transferred to the former spouse or civil partner. In Scotland an order may specify either a percentage of the member s cash equivalent or a fixed amount, which must be transferred. Page 7 of 21

8 Pension Sharing: cont d The portion of the cash equivalent transfer value transferred is known as the pension credit in relation to the former spouse s or civil partner s rights. The effect of the transfer on the member s rights is known as the pension debit. The decision about the percentage or the amount of the member s cash equivalent transfer value to be transferred is based on the amount calculated at the time the member or the court makes the request. It is recalculated to implement the pension sharing order on the Valuation Day (see below) in order to fix the amount of the pension debit and credit. It is the Trustee s policy that the Valuation Day will be 14 days after the implementation period starts. And the implementation period starts on the later of the date stated on the pension sharing order as the effective date; and the date when all the documents and information needed by the scheme have been received by the scheme. Please treat this as notification of the Valuation Day. If for any reason this in not the case, you will be notified accordingly. What benefits are included in the cash equivalent transfer value? The cash equivalent transfer value includes all the member s shareable benefits or future benefits that they would have been entitled to on the day before the Transfer Day. Page 8 of 21

9 Pension Sharing: cont d For a pensioner this will be the value of the pension. For an active member of the Scheme the cash equivalent transfer value is calculated as though their pensionable service had ended on the day before the Transfer Day. The Transfer Day is the day the pension sharing order takes effect. This is the later of the date stated on the order as the effective date; and the date of the decree absolute. In Scotland the Transfer Day is the date of the separation. What happens to member s pension rights after implementation of a pension sharing order? Active and deferred members The pension debit is revalued from the implementation of the pension sharing order to the member s retirement and their benefits are reduced by the amount of the revalued debit. Pensioners As the member has already retired, the pension credit and debit are based on a notional cash equivalent transfer value calculated for the purposes of the pension sharing order. The member s pension will be reduced by the amount of the debit and it will then continue to be paid but at this lower amount. If the member is paying maintenance to their former spouse or civil partner they may wish to discuss with their solicitor how this will interact with the timing of the implementation of their pension sharing order. Page 9 of 21

10 Pension Sharing: cont d We shall continue to apply the member s current tax code but the member may wish to contact Her Majesty s Revenue and Customs (HMRC) to discuss whether this needs to be changed. What happens to the rights given to the former spouse or civil partner after a pension sharing order is implemented? It is not the policy of the Trustees of the University of Sheffield Scheme for Non Academic Staff (1975) to keep any pension credits in the Scheme. The former spouse or civil partner must transfer them to another suitable pension arrangement. What happens to the pension credit on remarriage or a new civil partnership? The pension credit is not affected if the former spouse or civil partner remarries or forms another civil partnership. A pension sharing order is irrevocable. It provides a clean break and neither party is affected by events in the life of their former spouse or civil partner. Can a pension sharing order be changed later? No. A pension sharing order is irrevocable. It provides a clean break and provides that neither party is affected by events in the life of their former spouse or civil partner. Are there any tax implications? Pension sharing divides the pension benefits between the member and the former spouse or civil partner. Each party is liable to pay income tax on the pension income paid just to them. Page 10 of 21

11 Pension Sharing: cont d What if a foreign court makes an order for a divorce settlement in respect of my UK pension? Divorce legislation is different in overseas jurisdictions and a foreign court may have different powers with regard to dealing with pension assets on a divorce. An order from a foreign court in respect of a UK pension is not enforceable. Such an order will need to be ratified by a Court in the UK to make it enforceable against the Trustees of the Scheme. This will not be possible for orders made in some jurisdictions. Do you want to see the draft order? We like to see draft pension sharing orders before they are finalised. This is because correcting unworkable orders can be expensive and any costs are charged to the member. It can also cause delays in implementing the order. However we will still need to see the final order before we can start to implement any pension share order. The charges are set out in Appendices 2 (active and deferred members) and 3 (pensioner members). Who should the order be addressed to? The Trustees of the University of Sheffield Pension Scheme Leatherhead House Station Road Leatherhead Surrey KT22 7ET Is the Scheme contracted out? Yes. It is a contracted-out Salary Related Scheme. Page 11 of 21

12 Pension Sharing: cont d Is the Scheme winding up? No Are cash equivalent transfer values reduced due to under funding? No What are the charges? Our charges are set out in Appendices 2 and 3. There are separate charges for active and deferred members, and pensioner members. Invoices will be issued after each stage of the proceedings. We will not proceed with the implementation of a court order will not proceed until all charges have been fully settled. Page 12 of 21

13 Attachment Orders When is an attachment order available? On divorce, separation, annulment or dissolution provided the petition was filed at court on or after 1 August 1996 (or 1 July 1996 in certain cases) or 19 August 1996 in Scotland. What benefits can be included in an attachment order? Lump sum benefits payable on the retirement or death of the member. Pension payments can be included in England, Wales and Northern Ireland, but not in Scotland. When are attached pensions paid? Payments to the former spouse or civil partner do not start until the member retires. What happens if the member dies? If the attachment order provided for a lump sum payable on the member s death, this will be paid. But, if it provided for payment of benefits at retirement this arrangement will end, even if the pension was already being paid when the member died. What happens on remarriage or a new civil partnership? If the former spouse or civil partner remarries or forms another civil partnership, the attachment order ceases to apply and the whole pension reverts to the member. An attachment order relating to a lump sum will only cease to apply if the order states this specifically. Page 13 of 21

14 Attachment Orders: Cont d What happens if the parties financial circumstances change? If financial circumstances change, either party may apply to the court to have the attachment order varied. Are there any tax implications? The benefits are treated as being the member s benefits. So the member is liable for income tax on the whole benefit, even though part of the pension is paid directly to their former spouse or civil partner. How much does the attachment cost? The charges are set out in Appendices 2 (active and deferred members) and 3 (pensioner members). Page 14 of 21

15 Appendix 1 Information about the member As far as the Trustees are aware, the member s rights under the Scheme are not subject to any of the orders detailed in regulation 4(2) (d) of the Pensions on Divorce etc (Provision of Information) Regulations 2000 (SI 2000/1048). The member is/is not a trustee of the Scheme. All the member s rights under the Scheme are shareable. Page 15 of 21

16 Appendix 2 MNPA divorce charges for pension sharing and attachment orders University of Sheffield Pension Scheme (1975) for Non-Academic Staff: Active and deferred members Procedure What the charge covers Charge to member Produce cash equivalent transfer value quotation. The first quote within a twelve month period is free, unless required within 3 months of the request; the member is within 12 months of normal retirement age; or the member has asked for a cash equivalent transfer value in the last twelve months the valuation of the member s pension rights is not at a current date. No charge. Produce a 2 nd or urgent cash equivalent transfer value quotation. A quotation on standard terms and at a current date , depending on whether the case has been referred to the scheme actuary. An additional charge may be levied if a calculation has to be carried out on special terms or at a date that is not current. Provision of other information. The law requires certain information to be provided. Free if required to be provided by law. For other information requested there may be a charge of between 50 and 250. The charge is available on request. Page 16 of 21

17 Appendix 2: cont d Procedure What the charge covers Charge to member Acknowledging Pre order Notification Work when the scheme is notified of an intention to implement a sharing order. 150 Receipt of an attachment order and implementation. Checking the order, setting up an attachment record, splitting pension benefits at retirement into two accounts. 500 Receipt of pension sharing order where pension credit is kept in the scheme and the scheme is a defined benefit or hybrid scheme. Reviewing the order and creating a new record for the former spouse or civil partner. 2,450 Receipt of pension sharing order where pension credit is kept in the scheme and the scheme is a pure defined contribution scheme. Reviewing the order and creating new record for former spouse or civil partner. 2,300 plus 500 if the trustees or company will pay for advice to the former spouse or civil partner about purchasing an annuity at retirement. Receipt of pension sharing order by a defined benefit or hybrid scheme where the pension credit is transferred to another scheme. Reviewing the order and completing the documentation required by the authorities and receiving scheme. 1,650 Receipt of pension sharing order by a pure defined contribution scheme where the pension credit is transferred to another scheme. Reviewing the order and completing the documentation required by the authorities and receiving scheme. 1,550 Page 17 of 21

18 Appendix 2: cont d Responding to an inoperable pension sharing order; objections to an order; appeals against an order. Legal or technical assistance required to implement the court order. 400 ( 300 for first response, 100 for each subsequent response); costs charged by advisors to the scheme these will be advised as they occur; and time cost charges for additional time spent on complex cases. Notes: 1. Charges are calculated according to the requirements of each case and the figures provided in this Appendix may vary. 2. VAT will be added to the all charges. 3. If charges are unpaid after 30 days from the date of the invoice, the Trustees can add interest at a reasonable rate. 4. An invoice will be issued after each stage of the process. Charges need to be paid in full at each stage unless your solicitor confirms that payment will be made, in full, at the end of proceedings. 5. The Trustees will not comply with a Court Order whilst any charges are unpaid. 6. The charges are reviewed each year and may be increased as and when decided by the Trustees. 7. Where medical evidence is requested, the costs will be met by the divorcing spouse or civil partner. 8. Charges should be paid by cheque and made payable to the Trustees of the <Scheme Name> and sent to the <Scheme/Fund> s administrators, MNPA Ltd at Leatherhead House, Station Road, Leatherhead, Surrey, KT22 7ET. Page 18 of 21

19 Appendix 3 MNPA divorce charges for pension sharing and attachment orders University of Sheffield Pension Scheme (1975) for Non-Academic staff: Pensioner Members Procedure What the charge covers Charge to member Provide cash equivalent transfer value quotation for a pensioner. Calculation of pensioner transfer values is complex and requires work from the scheme actuary. Up to 800 for each quotation provided. The amount on each case will depend on whether it has been referred to the scheme actuary. Provision of other information. The law requires certain information to be provided. Free if required to be provided by law. For other information requested there may be a charge of between 50 and 250. The charge is available on request. Acknowledging Pre order Notification Work when the scheme is notified of an intention to implement a sharing order. 150 Receipt of an attachment order and implementation. Checking the order, setting up an attachment record, splitting pension benefits into two accounts. 500 Receipt of pension sharing order where pension credit is kept in the scheme and the scheme is a defined benefit or hybrid scheme. Reviewing the order and creating a new record for the former spouse or civil partner. 2,550 Receipt of pension sharing order and the pension credit is transferred to another scheme. Reviewing the order and completing the documentation required by authorities and receiving scheme. 1,650 Page 19 of 21

20 Responding to An inoperable pension sharing order; objections to an order; or an appeal against an order. Legal or technical assistance required to implement the court order. 400 ( 300 for first response, 100 for each subsequent response); costs charged by advisors to the scheme these will be advised as they occur; and time cost charges for additional time spent on complex cases. Notes: 1. Charges are calculated according to the requirements of each case and the figures provided in this Appendix may vary. 2. VAT will be added to the all charges. 3. If charges are unpaid after 30 days from the date of the invoice, the Trustees can add interest at a reasonable rate. 4. An invoice will be issued after each stage of the process. Charges need to be paid in full at each stage unless your solicitor confirms that payment will be made, in full, at the end of proceedings. 5. The Trustees will not comply with a Court Order whilst any charges are unpaid. 6. The charges are reviewed each year and may be increased as and when decided by the Trustees. 7. Where medical evidence is requested, the costs will be met by the divorcing spouse or civil partner. 8. Charges should be paid by cheque and made payable to the Trustees of the <Scheme Name> and sent to the <Scheme/Fund> s administrators, MNPA Ltd at Leatherhead House, Station Road, Leatherhead, Surrey, KT22 7ET. Page 20 of 21

21 Appendix 4 Information for Implementation If a pension sharing order is made by the Court we will need certain information from the member and the former spouse or civil partner in order to implement the order. The information that we will need is detailed below. There is no need to provide us with the information at this point in the process. Once a pension sharing order has been made we will send forms to the member and the former spouse or civil partner to complete, sign and return to us. We will need the information to be provided promptly at that stage. The Scheme may request information from the member about their state of health if a pension sharing order is made. If the Scheme requires more information to implement the pension sharing order than that detailed in the table below, we will request it once we have received the pension sharing order. From Information needed by the scheme Member Former spouse or civil partner Name (including details of all former names) Date of birth Address National Insurance Number Scheme name Scheme membership number (if applicable before implementation of the pension sharing order) If the pension credit is being transferred, details about the receiving scheme Any additional information requested by the Scheme (where applicable) (where applicable) Page 21 of 21