In theory, a percentage should be fair to both parties.
Perceptions might differ, however, if other marital assets – property in particular – have remained at broadly the same value over that period.
In my opinion, this is a flaw in the system, and if you look up ‘moving target syndrome’ online you will find plenty of analysis on this issue. It is interesting to note that pension sharing in Scotland, by comparison, can be based on a monetary amount.
Making the transfer
The next stage is to make the transfer. Hopefully, adviser and client have planned how they can make cash available for the transfer, and they may even have sold some investments already.
Pension providers will be aware that the Pensions Ombudsman expects them to settle PSOs as soon as is reasonably practical, and complaints have been upheld even where PSOs were settled within the four-month period.
Therefore, do not leave it too late to make cash available as the provider might get itchy feet and may potentially dispose of assets themselves.
Occasionally clients will enquire whether it is possible to settle a PSO in specie, ie transferring assets from one pension scheme to another.
The pension sharing legislation was written more than 20 years so it is silent on the issue, and it may come down to whether the scheme administrator is comfortable allowing it.
On one hand, it can be perceived as easier to process, particularly if the adviser is advising both parties and the funds are staying on the same platform.
On the other hand, the provider might be cautious about saddling a potentially vulnerable customer with investments that are not appropriate for their retirement needs.
There may also be practical challenges given the value of the pension credit is fixed but the value of the investments is fluctuating, so it might be difficult for a provider to evidence that they have transferred the requirement amount.
Wrapping up loose ends
At this stage, the pension credit has been transferred, and the couple have achieved their clean break. They can both now get on with their retirement planning.
A PSO cannot be varied once it has been granted, nor can a second PSO be granted on the same pension scheme for the same divorce, so everything now is final.
If the member’s pension is in capped drawdown, the scheme administrator will recalculate a new maximum income.
This will come into effect at the start of the next income year.
For the ex-spouse/civil partner, they will receive the funds as uncrystallised.
If the member’s pension was in payment, there will be no tax-free cash entitlement on the funds, but on the flip side taking income will not trigger the money purchase annual allowance.
