Pension sharing orders have been extremely useful tool since their introduction a decade ago, particularly in relation to public sector schemes such as those provided through the armed forces or NHS.However, they have at times proved to be a rather blunt instrument.
One of the most commonly encountered difficulties with such unfunded government schemes has been the ‘income gap’, ie the differing ages at which the parties will receive their pension benefit.This has occurred where a husband, for example, is aged 55 and in receipt of his army pension and the wife, is also aged 55, finds that a pension sharing order in her favour will not result in benefits being paid to her until she is aged 65.Therefore, if the pension sharing order is made now, not only does the wife have to wait 10 years to receive benefits under the scheme, the husband’s income in the meantime is depleted by the amount of the pension credit which is made to the wife.Whilst it has been possible to agree to adjourn the issue of pension sharing until the wife is old enough to receive the benefits applicable, this has been an entirely unsatisfactory solution.It has therefore come as very welcome news that this problem is being addressed, albeit in a piecemeal fashion across the various government schemes.
The first step has been the amendment to previous Pension Sharing Regulations via the Occupational, Personal and Stakeholder (Miscellaneous Amendments) Regulations 2009 which came into force on 6th April 2009.Pension Scheme providers are now able to pay pension credit members (ie those spouses benefiting from a pension sharing order) their pension benefits from the normal minimum retirement age which is currently age 50 but which will extend to 55 from April 2010.Although it should be noted that there is no obligation on scheme providers to pay the pension credits early, it does seem that some of the major schemes are choosing to do so.
Most notably, the Armed Forces Pension Scheme etc (Amendment) Order 2009 has reduced the age at which pension credit members are entitled to their pension from 65 to 55, provided that the pension sharing order is made after 6th April 2009.Furthermore, for those orders made before this date, it is now open to them to receive early payments of their pension from age 55, although this will be subject to an actuarial reduction.Therefore, if we have assisted clients in the past to receive a pension sharing order from an armed forces pension scheme, it may be worth contacting them to let them know that they are able to receive benefits earlier than had been anticipated, albeit at a reduced level.
The National Health Service Pension Scheme and Injury Benefits (Amendment) Regulations 2009 which also came into force on 6th April 2009 similarly provides that a pension credit member shall be entitled to the payment of benefits from the normal minimum retirement age, again with an actuarial reduction.
It has yet to be seen whether other schemes will follow suit, although it is understood that many intend to do so.Where the new regulations have yet to be adopted by a scheme, it may unfortunately remain necessary to adjourn the pension sharing application until the position has become clear in respect of that scheme.However, it is promising that some of the major providers have already taken steps to implement the regulations and it is hoped that this will allow practitioners to provide fairer solutions for their client and avoid revisiting the pensions point many years after separation.