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New Pension Sharing rules for the Armed Forces Pension Scheme

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Pension sharing was enacted in December 2000. It allows the Court to transfer a pension or part of a pension between divorcing spouses. This was extended to civil partners through the Civil Partnership Act 2004.

Pension sharing operates through the scheme member's pension being debited by a specified percentage, which is then credited into the other spouse's name. The effect is that the recipient is in control of a new pension fund as if they had been a member of the scheme in their own right from the outset.

Armed Forces Pension Schemes: The Problem

Before any pension sharing order is made it is essential to have some indication (preferably from an actuary) as to the effect the division will have, both in terms of lump sum entitlement and income. Often the intention will be to equalise incomes on retirement or divide the total pension income in some other way.

Pensions sharing orders made against final salary, occupational money purchase and private pensions will generally result in the husband and wife receiving their respective pension incomes from the same age, be it 60, 65 or some other age depending on the scheme rules. The Armed Forces Pension scheme (AFPS) and other unfunded government schemes are very different in nature.

The AFPS scheme rules are drafted specifically to recognise the very distinct nature of service life and the fact that youth and fitness are very often essential elements to the role. This is recognised through allowing scheme members to take their full retirement benefits from age 55. For those who wish to leave earlier, reduced benefits can be taken from age 40 provided that 18 years services have been completed.

This would not cause a problem in the context of divorce proceedings were spouses of service members able to take any scheme benefits they were transferred from the same age as their husband or wife. This was not the case however. Spouses in whose favour AFPS pension sharing orders were made could only take their scheme benefits from the age of 60 or 65. Depending on the difference in the parties' ages, this obviously made matters very difficult when trying to engineer a division that would equalise or divide pension incomes in some other way through to retirement.

As an example, take a 65 year old serviceman with a pension in payment divorcing his 55 year old wife. If a 50% pensions sharing order is made against his scheme, he would immediately lose the income from his pension but she could not claim the pension income for another 10 years. This was a huge gap in income which could not be catered for.

The New Rules

Following campaigns by ex-spouses of servicemen both here and in Europe, the government has changed the law. 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 the pension sharing order was made after 6 April 2009.

Those benefiting from pension sharing orders made before 6 April 2009 are also entitled to have their pension payment dates brought forward to age 55, however they need to contact SPVA Glasgow and specifically ask for this to happen. Failure to do this will mean the pension will be paid from:

- Age 65 for those benefiting from orders made between 06/04/06 and 06/04/09

- Age 60 for those benefiting from orders made before 06/04/06

We would recommend that legal and financial advice is sought before deciding to proceed with this, since the decision could have a significant effect on outstanding maintenance orders and the decision to take benefits early will impact on the actuarial pension paid.

The National Health Service Pension Scheme and Injury Benefits (Amendment) Regulations 2009 which also came into force on 6th April 2009 provides a similar leveling of benefits in respect of the NHS pension scheme. It has yet to be seen whether other unfunded schemes will follow suit, but early indications suggest that this will happen over time.

Andrew Barton is a member of the Stephens Scown Family Team, which is top ranked in the independent Chambers and Legal 500 guides to the legal profession. Andrew is a Resolution Accredited Specialist in complicated financial matters arising from divorce and has particular experience in dealing with pension sharing and pension provision generally in the context of divorce.