PSI3.5.4 - Membership of Schemes: Pension Sharing on Divorce – Welfare Reform and Pensions Act 1999

(This archived guidance relates to HMRC discretionary practice before the 6th April 2006. For current guidance on Registered Pension Schemes see the Registered Pension Schemes Manual)

(This text has been withheld because of exemptions in the Freedom of Information Act 2000)

The law changed in 2000 to allow a further pension option - pension sharing - as part of a divorce settlement. The new pension sharing provisions came into effect on 1 December 2000. The changes to the law are contained in the Welfare Reform and Pensions Act 1999 which

• made changes to matrimonial and divorce law to give courts the power to instruct schemes to carry out a pension sharing order as part of a divorce settlement, and
• introduced social security legislation and statutory regulations that sets out how a scheme must carry out a pension sharing order.

The pension sharing provisions can be applied in divorce proceedings that commence on or after 1 December 2000 and pension rights could be shared in the following pension arrangements

• retirement benefits schemes – approved or seeking approval
• buy-out contracts
• personal pension schemes
• retirement annuity contracts
• old code schemes, or
• non-approved schemes.

The court itself will actually make an order which states how much of a scheme member’s benefits must be shared with the ex-spouse although in some cases the pension sharing will be set out in a legally recognized “qualifying agreement” between the divorcing couple. Pension sharing under a qualifying agreement as opposed to a court order will be more common in Scotland.

Tax legislation (see Introduction 4.17) and practice also changed to so that a scheme would not lose tax approval if it implements a pension sharing order made in accordance with the requirements of the Welfare Reform and Pensions Act 1999.