Pension Adjustment Orders on Separation

When parties are separating, and when one or both of said parties are contributing to a pension scheme, the member of that pension scheme cannot change the terms of the scheme, even with the agreement of the Trustees.

 

Therefore, if the parties separating are completing a separation agreement and agree certain provisions for their pensions, the Trustees of the pension will not accept same as they will inform you that the only way that the pension can be altered is by way of a Pension Adjustment Order (PAO) granted by the court.

It is important to remember that a pension is an asset of the marriage. In some cases, it can be quite a lucrative asset and it is important to remember this when negotiating a settlement or indeed getting ready for a court hearing. A pension can be divided or indeed transferred from one party to another. A PAO can only be granted once the parties have secured a Judicial Separation Order or a Divorce Order.

If there are pensions to be taken into account in a family law case, then the Trustees of that pension must be notified. Usually, the parties agree the format for the PAO with the Trustees of the pension as the Trustees must give a letter to the court approving the draft PAO.

 

Pension Schemes

The most common types of pension schemes would be an occupational pension scheme or self-employed pension scheme. An occupational pension scheme can be broken up into a defined contributions scheme and a defined benefit scheme.

A defined contribution scheme involves the employer and/or employee paying a percentage of the employee’s salary into the scheme which is then invested by the Trustees. This is usually the self-employed scheme.

The defined benefit scheme is usually operated by the civil service. This type of scheme is where a specific level of pension is to be paid to the employee on retirement which would usually be a percentage of that employee’s salary.

A pension can be adjusted whereby a portion of the pension benefit can be paid to the other spouse. In the alternative, a percentage of the retirement benefit of a pension can be used to provide a separate pension for the other spouse.

 

Pension Benefits

A PAO in respect of a retirement benefit will need to specify a particular period and a percentage. The period is the period of reckonable service of the member prior to Divorce or Judicial Separation.

It can be from when the member commenced payments into the pension or perhaps from the date of marriage. It would usually be from the date of marriage but this will depend on what is negotiated between the parties.

The cessation date will be the date of the Judicial Separation of Divorce Order.

The percentage of the amount of benefit paid to the other spouse can be anything from 0.001% to 100%. Again, this is up to the parties to negotiate or for the court to decide.

It is important to remember that a PAO in respect of the contingent benefit cannot be made after one year following the Divorce or Judicial Separation. Therefore, it is also important to finalise the PAO with the court as soon as possible after the Divorce or Judicial Separation Orders have been made.

The parties can agree on a “nominal” PAO or “nil” PAO. This PAO is usually for 24 hours at the beginning of the reckonable service period at a percentage of 0.01 % or less.

 

Retirement Benefit

Where a spouse has obtained a PAO in respect of a retirement benefit and the member spouse has not retired, he/she may leave it in the pension scheme and then it is payable when the member spouse retires or he/she can have the benefit valued and transferred from the scheme.

The spouse can then request the Trustees to hold the transfer amount within the same scheme or pay it out to another scheme to his/her benefit. Once the PAO has been made by the court either by the agreement of the parties or by the Judge, it should be served on the Trustees of the pension as soon as possible and the Order will remain on their file until the benefit(s) become payable.

It is worth reiterating that the Trustees of a pension will not accept an agreement clause in a separation agreement regarding a pension. The only document that is accepted by the Trustees to adjust a pension is a Court Order.

It may be appropriate in some cases if the parties are anxious to complete a separation agreement that they put in nominal clauses into the separation agreement and then make the PAO when they are applying for a Divorce.

However, it would be advisable to apply for the Divorce as soon as the parties become eligible as it is important that the time between completing the separation agreement and the Divorce is as short as possible to avoid any further financial claim by one or another of the parties.

 


 

Pensions are a complicated aspect of family law and it is advisable to obtain legal advice in respect of same. Indeed, depending on the type of pension, it may also be necessary to obtain financial advice in respect of same.

All and all, professional advice is essential when it comes to Pension Adjustment Orders.