Pension Sharing Transfer Costs

Pal

Continuing on from my last post....

Be very sure you understand the risks involved in using SL instead of a section 32 policy. It might be that you could end up with a worse pension if the SL policy does not perform as well as the S32 policy. Get the IFA to explain these risks to you.

Another thought....

It is possible that the Trustees have found a policy that they can take out in your name and transfer you to without your consent. If that is the case come back here and post again with details and I'll have another think.

Your best bet for now is to ask them what will happen if you elect not to transfer anywhere. You could also "hint" that you are considering going to the pensions ombudsman as you think that the Trustee's policy is putting you at a financial disadvantage compared to other members of the scheme, including your ex-spouse.

Pal

Pal, don't the same principles as repensioning apply?  In either case, you go to a discount broker and get the pension fund, with reduced annual fees, for minimal cost.  If the IFA can do it, why not go a step better and go through a discount broker, for less?

I guess you are probably right, but it seems a bit odd to me.  Repensioning is not my area of expertise.  Newcomer could take advice up until it comes to signing anything, then go away and take the pension out using a non-advice broker to get the commission refunded to the policy, however I can't help thinking that it is almost theft from the IFA.

To be honest I also think in Newcomer's position, good IFA advice is probably worth paying for, whether through commission or fees, in order to properly compare the options available to her as a result of her divorce settlement.

Of course whether the IFA is good is an entirely different discussion!

DiggingOut

 Newcomer could take advice up until it comes to signing anything, then go away and take the pension out using a non-advice broker to get the commission refunded to the policy, however I can't help thinking that it is almost theft from the IFA.

Yes, that would be. It is only if Newcomer knows exactly what she wants and doesn't need advice. Which would involve a lot of research, etc. Don't know whether she wants to/has the time for that.

Probably has enough on her plate without becoming a pensions expert.

Debt_Free_Chick

As it was an occupational scheme, write back to the Trustees saying that you do not want to transfer out because of the reinvestment costs and you want them to set you up as a member within their fund. They should be able to do this easily. Just because you are splitting your pension rights from your husband's does not mean that you have to transfer out of the scheme.

It means just that, unless the trustees specifically allow the ex-spouse to become a member of the scheme. The pension sharing regs do NOT force trustees to accept ex-spouses as members. It's up to each scheme and I know of very few that have allowed this.

The Trustees cannot buy an investment outside of the fund for you

Yes they can. Again, the pension sharing regs specifically allow this. You either choose a personal pension to receive the pension sharing credit or the trustees will transfer you to one of their choice. They will normally have a default plan i.e. with a specific pension provider. They are protected from complying with the usual FSA best advice regulations.

Drat, yes just checked the Order and it is in there.

"Date by which you must set up the pension credit:

4 months after receipt of the certificate of decree absolute."

This is confusing. The trustees have four months from the date they receive all relevant information to complete the transfer. Relevant information includes details of the receiving pension plan. So the transfer will only be completed within four months of the decree absolute/consent order if the ex-spouse has also specified details of the receiving plan. The trustees will not be in breach of the pension sharing regs if the ex-spouse delays sending the details. The clock only starts ticking once the trustees have all the relevant information.

Regards
Pensions Manager for an occupational pension scheme that has to try enforce these wretched orders

Pal

I'll defer to your greater knowledge on this one! ;D

I know that the regulations were drafted to allow the Trustees to transfer people out but was not aware that the legal confusion over the FSA best advice rules had been resolved. I can't help but think that this route is open to legal challenge anyway so it would be a brave set of Trustees who bought an investment for someone else simply to save a few hundred pounds in administration costs. I am sure that the Ombudsman would have harsh words to say when the member complains that they have lost out and the Trustees were obviously looking after the interests of the employer rather than one of its beneficiaries.

It is still worth Newcomer asking the question though, if only to force the Trustees to take the investment advice required to buy the product.

This is confusing. The trustees have four months from the date they receive all relevant information to complete the transfer. Relevant information includes details of the receiving pension plan. So the transfer will only be completed within four months of the decree absolute/consent order if the ex-spouse has also specified details of the receiving plan. The trustees will not be in breach of the pension sharing regs if the ex-spouse delays sending the details. The clock only starts ticking once the trustees have all the relevant information.

Are you sure about this? My understanding was that you have to specifically put wording into the sharing order to stipulate any preconditions to the 4 month period starting. It would be an unusual court that didn't enforce the time limit because of something not written on the order, given that both sets of solicitors and the Trustees had the chance to review and comment on the order before it was finalised.

Debt_Free_Chick

.  I can't help but think that this route is open to legal challenge anyway so it would be a brave set of Trustees who bought an investment for someone else simply to save a few hundred pounds in administration costs.

The trustees take advice once, only i.e. not on each occasion that they need to "buy" a destination (personal pension) plan for each ex-spouse. Having taken the advice, the trustees then have a default plan, for those who do not make their own arrangements. In practice, trustees would strongly encourage the ex-spouse to take their own advice and only use the default for those who simply refused to make their own arrangements. I've not yet had to enforce the default.

The default plan will, in practice, be one that is likely to be suitable for the vast majority ... and likely to be a stakeholder. So it will be low-cost and flexible, should the ex-spouse get around to looking into it more carefully and decide to change some of the features that the trustees selected. The trustees are likely to "play it safe" e.g. retirement age 60, invest the TV in cash. As I said earlier, I've not had to use the default (yet) and I doubt that many other schemes have, in practice. It would be an odd situation where an ex-spouse negotiated a pension share then failed to take advantage of it ... but stranger things have happened.

Are you sure about this?  My understanding was that you have to specifically put wording into the sharing order to stipulate any preconditions to the 4 month period starting

Oh go on then ...  ;)  Section 34 of the Welfare Reform & Pensions Act 1999

34. - (1) For the purposes of this Chapter, the implementation period for a pension credit is the period of 4 months beginning with the later of-
 
(a) the day on which the relevant order or provision takes effect, and
(b) the first day on which the person responsible for the pension arrangement to which the relevant order or provision relates is in receipt of-  
(i) the relevant matrimonial documents, and
(ii) such information relating to the transferor and transferee as the Secretary of State may prescribe by regulations.

And then in The Pensions on Divorce etc. (Provision of Information) Regulations 2000 SI2000/1048

Information required by the person responsible for the pension arrangement before the implementation period may begin
5. The information prescribed for the purposes of section 34(1)(b) of the 1999 Act (information relating to the transferor and the transferee which the person responsible for the pension arrangement must receive) is -

(a) in relation to the transferor -

(i) all names by which the transferor has been known;

(ii) date of birth;

(iii) address;

(iv) National Insurance number;

(v) the name of the pension arrangement to which the pension sharing order or provision relates; and

(vi) the transferor's membership or policy number in that pension arrangement;

(b) in relation to the transferee -

(i) all names by which the transferee has been known;

(ii) date of birth;

(iii) address;

(iv) National Insurance number; and

(v) if the transferee is a member of the pension arrangement from which the pension credit is derived, his membership or policy number in that pension arrangement;

(c) where the transferee has given his consent in accordance with paragraph 1(3)(c), 3(3)(c) or 4(2)(c) of Schedule 5 to the 1999 Act (mode of discharge of liability for a pension credit) to the payment of the pension credit to the person responsible for a qualifying arrangement -

(i) the full name of that qualifying arrangement;

(ii) its address;

(iii) if known, the transferee's membership number or policy number in that arrangement; and

(iv) the name or title, business address, business telephone number, and, where available, the business facsimile number and electronic mail address of a person who may be contacted in respect of the discharge of liability for the pension credit;

With me so far  ;)

Essentially, the ex-spouse has an obligation under the regulations to provide the trustees with details (as set out above) of the scheme/plan to which she wants to transfer. The four month implementation period begins on the date of the court order - provided the information has been provided. If not, the four month implementation period begins once that information has been provided. The trustees can't pay the pension credit until they know where to pay it to.

It would be an unusual court that didn't enforce the time limit because of something not written on the order, given that both sets of solicitors and the Trustees had the chance to review and comment on the order before it was finalised.

The order only specifies the pension share - and it should be as a percentage of the cash equivalent of the member's accrued pension i.e. the TV the member would have if they transferred out of the scheme on the date of separation.

Despite commenting on draft orders, we still get completely unenforceable orders! Neither the family lawyers nor the Courts know how to implement sharing orders within the requirements of the regulations. Every order I've seen in the past 6 months (about 6 of them) has been unenforceable  (no exaggeration - honest!). Whilst I sympathise with them - up to a point - it's incongruous that the court order is unenforceable!

Such is life - and it keeps me in a job. Though it's not the most challenging aspect.

kind regards

Pal

I agree. I have only seen a couple of these but both were complete rubbish. One solicitor had even filled out an earmarking order but changed the title to read "Pension sharing order".

At the risk of getting pedantic....

Have you managed to find a stakeholder provider who will agree to let you buy a policy in someone else's name? If so, who was it? I haven't looked into this for ages but most providers were refusing to do this a few years ago, and I would still have concerns that the provider and Trustees were open to legal challenge if the pension they chose didn't perform very well.

Looking at the legislation you have quoted, it says:

(c) where the transferee has given his consent in accordance with paragraph 1(3)(c), 3(3)(c) or 4(2)(c) of Schedule 5 to the 1999 Act (mode of discharge of liability for a pension credit) to the payment of the pension credit to the person responsible for a qualifying arrangement ....

Doesn't the phrase "Where the transferee has given his consent" mean that you need the "recipient" to agree to the transfer?

I know that it was always intended that the legislation would allow compulsory transfers out, but it I always thought that actually doing it was riddled with potential problems, both during and after the transfer had occured.

Newcomer

Hi Pal (& others)

Finally had a reply from the Trustees. Seems if I don't transfer out, they will transfer me out to L & G. Quote from their letter below.

"The pension sharing legislation permits the trustees of an occupational pension scheme to decide the way in which they will discharge their liability for pension credits. In deciding how to discharge their liability, the decisions made by trustees of other pension schemes is not a relevant consideration.

In order to make their decision in a fair and consistent manner, the Group Trustees have drawn up a policy for dealing with pension sharing orders. The Group Trustees have decided to discharge their liability for pension credits by transferring them out of the Scheme to a Qualifying Arrangement of the ex-spouse's choosing. If an ex-spouse fails to consent to an external transfer, the Group Trustees are allowed by legislation to transfer the pension credit to a suitable arrangement of their choosing without the ex-spouse's consent. In accordance with their trust law duties, the Group Trustees review the continued suitability of the policy from time to time. The last such review by the Group Trustees took place in Jan 2004."

Thanks to all those who posted advice/suggestions, was much appreciated