Step 6: Putting Your Plan into Action

For personal pensions, any pension credit must be transferred externally. For occupational pensions, there may be the option of either an internal or external transfer.

An internal transfer gives the ex-spouse their own pension rights within the same pension scheme, entirely separate from the member’s pension. This is different from an attachment order, where the original member retains the pension rights. Internal transfers are often referred to as “shadow membership.”

In unfunded public sector schemes, such as those for the NHS, Teachers, Police, and Armed Forces, internal transfers are the only option—external transfers are not allowed, and the ex-spouse will become a member of the scheme in their own right.

Some private sector funded occupational schemes may offer shadow membership as a voluntary option, but most do not. It is essential to clarify this during the information-gathering phase. Some schemes may allow both internal and external transfers, in which case it’s important to weigh the pros and cons of each to determine which best suits your needs.

If the scheme allows shadow membership, the following should be taken into account:

• The type of benefits (final salary or money purchase)
• The retirement age at which benefits will be available
• Whether early retirement is an option and if penalties apply
• Death benefits—what will happen if the ex-spouse passes away before or after retirement or before implementation
• The default option offered by the scheme

In both funded occupational schemes and personal pensions, the pension credit can be transferred to a different pension arrangement. This may require the person receiving the pension credit to seek advice from an independent financial advisor (IFA).

The pension sharing order becomes effective either 28 days after the order is issued or from the date of the decree absolute, whichever is later. Note that the implementation period does not begin on the same day the order becomes effective.

Once the scheme trustees or managers have received the pension sharing order and all required documentation, they must implement the order within four months. This is referred to as the implementation period.

The necessary documentation typically includes:

• The decree absolute or final order of the divorce
• The consent or court order
• The pension sharing annex (P1)
• The required information as outlined by regulations
• Any additional information requested by the scheme managers or trustees

If the scheme trustees or managers do not implement the pension sharing order within the four-month timeframe, they must notify The Pensions Regulator within 21 days of the end of the implementation period. There must be a valid reason for any delay.

If the implementation is being managed on your behalf, the person responsible should keep you updated and explain any delays.

The court issues a pension sharing order, either as part of a contested case or by consent if the parties agree. This order is sent to the pension scheme trustees or managers, along with an annex that details the share of the pension (up to 100%) being transferred, based on the member’s cash equivalent transfer value. A separate annex must be included for each pension arrangement.

The court typically sends this order to the trustees or managers, but it’s important to verify that the implementation period begins as soon as possible. If MKC Wealth is managing the implementation for you, we will ensure that this is done.

If the pension is already being paid out, the ex-spouse cannot take a tax-free cash sum from the pension credit when it becomes available. This is known as a disqualifying pension credit.

If the ex-spouse dies before the pension sharing order is implemented, the scheme’s rules will dictate how the trustees or managers handle the pension credit. In some cases, shadow membership may be transferred to another person as if they were the former spouse.

It’s recommended that the trustees or managers be consulted regarding how they intend to handle such situations and that the ex-spouse nominates potential beneficiaries by completing a nomination form.

MKC Wealth can assist you in completing these forms.

The scheme trustees or managers can charge fees for administering the pension sharing order. Details of any charges should have been provided earlier in the process.

If fees are not paid, the scheme may delay implementation, provided they informed you of this requirement within 21 days of becoming aware that an order might be made.

Charges may be deducted from the pension benefits (debit and credit) during the implementation of the order. Alternatively, the trustees or managers may require payment of the fees in cash before the implementation begins, which could delay the process.

If the fees include VAT, the VAT portion may need to be paid in cash.

If one party pays the fees on behalf of the other, they can recover the amount as a debt.

Once all required documents have been received, the trustees or managers must send a Notice of Implementation to both the member and the ex-spouse within 21 days. This notice should confirm:

• That all necessary information has been received
• The start date of the implementation period
• The date by which the pension credit will be discharged

During the four-month implementation period, the scheme trustees or managers will recalculate the cash equivalent value to determine the exact amount to which the pension credit percentage will apply. This is known as the “Valuation Day.”

The default option applies if the ex-spouse is granted a pension sharing order but fails to provide information on where the pension credit should be transferred. In such cases, the scheme may delay implementation until the necessary details are provided (which must be done within 21 days of receiving notice) or they may transfer the pension credit to a Section 32 buyout policy of their choice.