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Introduction

Information for Scheme members and their spouses

For many people, pension rights are one of their most important and valuable assets.

Until 1996 the only way pensions could be taken into account when couples were divorcing was to offset their value against the value of other financial assets in the divorce or nullity of marriage settlement.

Provisions brought into effect from 1 July 1996 (England and Wales), 19 August 1996 (Scotland) and from 1 December 2000 (all UK) allow divorcing couples two additional ways of taking their pension benefits into account. They are:

• Earmarking (as from 1996)
• Pension sharing (as from 1 December 2000)

This booklet gives general information about these provisions.

The right to offset the value of pension rights against the value of other financial assets in the divorce settlement still remains an option.

It should be noted that earmarking can also be used in cases of judicial separation.

This booklet is only a general guide. It is not a full statement of the law governing the Scheme, and members are advised to take legal advice on the options available to them.

Divorce proceedings

General

In cases of divorce or nullity of marriage, the petitioner (either the husband or wife) can make an application to the Court for a share of the matrimonial assets.

Once the application has been lodged with the Court, the date for the first appointment at Court will be made.

If the Scheme member has not already done so, he/she will be required to apply for a valuation of his/her pension rights under the Local Government Pension Scheme. This is because the divorcing couple are required to disclose to each other and to the Court all their financial interests.

This will include details of those benefits under the Scheme that are shareable rights.

Obtaining information about benefits under the Local Government Pension scheme if you are involved in divorce proceedings

The Court will need information about the member's pension benefits and general information about the Local Government Pension Scheme in order to consider whether an earmarking or pension sharing order is appropriate.

The member's spouse, or their solicitor, can only ask for basic information about the Scheme.

Members are entitled to ask for information about the Scheme and their own personal benefits. As part of this process, members should complete the form at the end of this booklet to request information about the LGPS and to request a Cash Equivalent Value (CEV). This is the capitalised value of their LGPS pension benefits. It provides a convenient way of assessing the value of the pension in relation to other assets such as a house.

Members are, subject to certain exceptions, entitled to one free CEV per year, for any purpose.

Any charges made by the Sheme for providing a CEV and administering an earmarking or pension sharing order are shown on the enclosed Schedule of Charges.

Please note all correspondence received by the Scheme in connection with a divorce will be acknowledged in writing. If no acknowledgement is received, contact the Pensions Section.

Additional information relating to divorces in Scotland

Scottish law uses the concept of 'matrimonial property'. Pension benefits form part of the 'matrimonial property' and, unlike the rest of the UK, only pension rights that have built up during the marriage can be shared or made subject of an earmarking order.

In Scotland, a divorcing couple often make 'Minutes of Agreement' to settle as many issues as possible before going to Court. This allows them to reach their own decisions (with legal advice) about the division of the matrimonial assets.

Where the member and the member's spouse enter into such an agreement, the member must notify the Pensions Section that he / she intends to share pension rights with the spouse.

Disclaimer

This booklet gives general guidance only to assist Scheme members and their spouses who may be involved in divorce or nullity of marriage proceedings.

It is not a full statement of the law governing the Scheme.

The Pensions Section will provide information as required during various stages of the divorce or annulment proceedings.

Individuals should seek further information from their solicitors about the relevance of earmarking or pension sharing provisions in individual divorce or annulment proceedings.

Earmarking

What is earmarking?

Earmarking is a term used to describe special attachment orders made by the Court.

When an attachment, or earmarking, order is made the pension still remains that of the Scheme member, but the Scheme is required to make some form of payment to the former spouse when the member's benefits become payable.

The Court can order that the former spouse receives one, or a combination, of the following benefits:

• all, or part, of the member's Local Government pension (this does not apply in Scotland)
• all, or part, of the member's Local Government lump sum retirement grant
• all, or part, of any lump sum paid in the event of the member's death

An order can also require certain members who joined the LGPS before 17 March 1987 to exchange some pension for an additional lump sum retirement grant (this does not apply in Scotland).

The order will be sent to the authority administering the Scheme  who will acknowledge it within 21 days, and ensure it is acted upon.

A copy of the decree or declarator of divorce, nullity of marriage or judicial separation including, in the first two cases, confirmation that the decree has been made absolute should be sent to the authority administering the Scheme

Changes

As it may be many years between the divorce and the benefits coming into payment, it is important to be aware of the following changes:

• an earmarking order against pension payments, but not lump sums (unless the order directs otherwise), will automatically lapse on the remarriage of the former spouse, and the full pension will be restored to the member
• pension payments to the former spouse lapse on the death of the member
• the former spouse must inform the Pensions Section (see details under "Further Information") of any change of address, any change of name by marriage or by deed poll and, where the earmarked pension is in payment, any change of bank account details
• if the Scheme member transfers his / her benefits to another scheme, the earmarking order will transfer. The Pensions Section  will, within 21 days of the transfer, inform the former spouse of any transfer

The Pensions Setion must be informed of the death of the member or of the former spouse.

Paying the earmarked pension

The Pensions Section will contact the former spouse when the member applies for payment of their pension benefits or, if the lump sum payable on death has been earmarked, when the member has died. The pensions Section will check that the earmarking order is still valid and, if so, will arrange for payment to be made to the former spouse.

Pension sharing

What is pension sharing?

Pension sharing is similar to earmarking in that the Court will serve a Pension Sharing Order on the Scheme. When the Court orders pension benefits to be shared, the former spouse is allocated a percentage (up to 100%) of the member's benefits (Note: In Scotland, the Court may order that a specified amount of the member's benefits be allocated to the former spouse).

The member's benefits are reduced accordingly, and the former spouse will hold benefits in his / her own right, independent of the Scheme member.

The Pension Sharing Order will be sent to the authority administering the Scheme who will implement it as directed.

A copy of the decree or declarator of divorce, nullity of marriage or judicial separation including, in the first two cases, confirmation that the decree has been made absolute should be sent to the authority administering the Scheme

Pension sharing was introduced from 1 December 2000 to enable clean break settlements and to overcome some of the inherent problems associated with earmarking orders. The the former spouse has to wait for the Scheme member to retire (or die) before becoming entitled to the earmarked pension (or lump sum) and is also at risk of:

• losing the retirement income if the former spouse remarries (although any earmarked lump sum is not lost, unless the order instructs otherwise)
• losing the retirement income if the Scheme member dies first (although any earmarked death grant would be payable)
• having the intended income delayed if the Scheme member delays retirement

What will a pension share mean for the Scheme member?

Pension share ordered before retirement

The member's pension, lump sum retirement grant and any subsequent spouse's benefits will be reduced by the percentage allocated to their former spouse.

For divorces in Scotland, the Court will specify either a percentage or a monetary amount. This reduction will be known as a 'pension debit' and will normally be calculated within 4 months of the pension sharing order being received.

At retirement, the 'pension debit' will be increased in line with the rise in the Consumer Price Index between the date the amount of the 'pension debit' was first calculated and the date the member's pension becomes payable. This revalued amount of 'pension debit' will then be deducted from the member's total benefits.

On the member's death, if they have remarried, a pension share will reduce the widow(er)'s benefit payable to the new spouse. However, if the member has dependent children, any child's pension payable will not be reduced because of a pension share.

Transferring benefits

The member will still be able to transfer their remaining benefits to another pension scheme or arrangement on ceasing membership of the LGPS. If the transfer is to another LGPS fund, the benefits will be transferred in full and the 'pension debit' applied by the new fund at retirement. If the transfer is to another type of pension scheme or arrangement, a transfer value will only be paid in respect of the debited amount of the member's benefits.

Buying additional pension benefits

The member can pay Additional Voluntary Contributions (AVCs) or, provided the member is under age 64, purchase additional years of membership in the LGPS. For more information on either of these options, please contact Mrs Wass on 01392 688219 (Note: The pension fund may also require the member to satisfy them that he / she is in reasonably good health.

Contributions can be made to a Stakeholder Pension Scheme or a Personal Pension Scheme at the same time as contributing to the LGPS.

It is advisable to seek independent advice.

Pension share ordered after retirement

The pension currently in payment will be reduced by the percentage allocated by the Court to the former spouse from the date of the pension share.

On the pensioner member's death, if he / she has remarried, a pension share will reduce the widow(er)'s benefit payable to the new spouse. However, if the pensioner member has dependent children, any child's pension payable will not be reduced because of a pension share.

Paying the shared pension

The Scheme member will claim their Local Government pension benefits in the normal way.

Note: a member who is or who has been a controlling director in the tax year the contributions are made or in any one of the preceding 5 tax years cannot contribute to a concurrent Stakeholder or Personal Pension Scheme.

What will a pension share provide for the former spouse?

Pension share ordered before the member’s retirement

Normally, within 4 months of a pension sharing order being received, the former spouse will be granted pension benefits in the Local Government Pension Scheme in his / her own right. These are equal to the value of the share of the member's benefits granted by the court and are known as 'pension credit' benefits. These will provide:

• an annual pension and a lump sum equal to three times the pension, payable from age 65 or, if later, from the date of the pension share, or
• commutation of trivial benefits at State Pension Age (if the 'pension credit' is very small it can be paid as a one off lump sum payment), or
• commutation of benefits before age 65 on the grounds of serious ill health where life expectancy is less than one year (a one off lump sum payment equal to eight times the annual rate of the 'pension credit' can be paid), or
• a lump sum equal to three times the annual rate of the 'pension credit' if the former spouse dies before the 'pension credit' becomes payable, and
• if the credited member dies within five years of the 'pension credit' benefits becoming payable, a lump sum equal to five times the annual rate of the 'pension credit' less the amount of annual pension already paid to the credited member.

When the 'pension credit' benefits become payable they will be increased in line with the rise in the Retail Prices Index i.e. they will be increased in line with the rise in the cost of living between the date the amount of the 'pension credit' was first granted and the date the 'pension credit' becomes payable.

Once in payment, the annual rate of the 'pension credit' will be increased each year in line with the rise in the Consumer Price Index.

'Pension credit' benefits do not provide widow(er)'s or dependants benefits.

Transferring benefits

A former spouse can opt to transfer the value of the 'pension credit' to another qualifying pension scheme or arrangement at any time up to one year before age 65 (other than to another LGPS fund). 'Pension credit' benefits cannot be aggregated with any rights the former spouse may have in the LGPS in his / her own right i.e. as a result of being a contributor to the Scheme.

Buying additional pension benefits

The former spouse will not be able to make Additional Voluntary Contributions (AVCs) to the LGPS or purchase added years of membership in the LGPS in order to increase the 'pension credit' benefits.

Paying the shared pension

The Pensions Section will advise the former spouse how to apply for the 'pension credit' benefits when the pension share is confirmed.

The pension, when paid, will be taxed (if appropriate).

As the former spouse's 'pension credit' benefits are independent from the Scheme member's benefits, a pension sharing order does not lapse on the death of the Scheme member or the remarriage of the former spouse.

If a former spouse were to remarry, and that marriage were to end in divorce or annulment, the 'pension credit' could itself be subject to a pension sharing order.

Pension share ordered after the member's retirement

Normally, within 4 months of a pension sharing order being received, the former spouse will be granted pension benefits in the Local Government Pension Scheme in their own right. These will be equal to the value of the share of the member's benefits granted by the court and are known as 'pension credit' benefits. Where the pension share takes place after the Scheme member has retired, the 'pension credit' will provide:

• an annual pension payable from age 65 or, if later, from the date of the pension share, or
• commutation of trivial benefits at State Pension Age (if the 'pension credit' is very small it can be paid as a one off lump sum payment), or
• commutation of benefits before age 65 on the grounds of serious ill health where life expectancy is less than one year (a one off lump sum payment equal to five times the annual rate of the 'pension credit' can be paid), or
• a lump sum equal to three times the annual rate of the 'pension credit' if the former spouse dies before the 'pension credit' becomes payable, and
• if the credited member dies within five years of the 'pension credit' benefits becoming payable, a lump sum equal to five times the annual rate of the 'pension credit' less the amount of annual pension already paid to the credited member.

When the 'pension credit' benefits become payable they will be increased in line with the rise in the Consumer Price Index i.e. they will be increased in line with the rise in the cost of living between the date the amount of the 'pension credit' was first granted and the date the 'pension credit' becomes payable.

Once in payment, the annual rate of the 'pension credit' will be increased each year in line with the rise in the Consumer Prices Index.

'Pension credit' benefits do NOT provide widow(er)'s or dependants benefits.

Transferring benefits

A former spouse can opt to transfer the value of the 'pension credit' to another qualifying pension scheme or arrangement at any time up to one year before age 65 (other than to another LGPS fund). 'Pension credit' benefits cannot be aggregated with any rights the former spouse may have in the LGPS in his / her own right i.e. as a result of being a contributor to the Scheme.

Buying additional pension benefits

The former spouse will NOT be able to make Additional Voluntary Contributions (AVCs) to the LGPS or purchase added years of membership in the LGPS in order to increase the 'pension credit' benefits.

Paying the shared pension

The Pensions Section will advise the former spouse how to apply for the 'pension credit' benefits when the pension share is confirmed.

The pension, when paid, will be taxed (if appropriate).

As the former spouse's 'pension credit' benefits are independent from the scheme member's benefits, a pension sharing order does not lapse on the death of the scheme member or the remarriage of the former spouse.

If a former spouse were to remarry, and that marriage were to end in divorce or annulment, the 'pension credit' could itself be subject to a pension sharing order.

Further information

The authority administering the Local Government Pension fund is Devon County Council.

If you need more information about the Scheme you should contact the Pensions Section at the following address:

Devon Pension Services
Estuary House
Peninsula Park
Exeter
EX2 7XB

Tel: 01392 688218
Email: pensions@devon.gov.uk

Any letter sent out will contain a direct dial number for the officer working on that case.

You can also get in touch with us by fax on 01392 688225.

Notificate of the pension pension share you will also contain information on the appeals procedure to use where there is a disagreement on any decision taken by the administering authority when implementing the pension sharing order.