PSI24.1.1 - Pension Credit Benefits – Form of Benefits – background

(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)

It was a condition of approval that scheme membership had to be limited to employees or former employees of an employer participating in the scheme or the widow, widower or dependants of such an employee.

In December 2000 the law changed to allow the pension rights of an employee (or former employee) to be shared with the ex-spouse of the employee as part of a financial settlement upon their divorce.

Under the new pension sharing on divorce provisions (see PSI3.5.4), some or all of the employee’s existing benefit rights can be passed over to the ex-spouse so that the ex-spouse can receive benefits in his or her own name. This has opened up a new category of scheme member – the ex-spouse member and the widow or widower and/or dependants of the ex-spouse member. The benefit rights to which the ex-spouse member becomes entitled might be referred to as either “pension credit”, “pension credit rights” or “pension credit benefits”.

Pension credit rights allocated to a scheme member’s ex-spouse following the pension sharing order are treated independently from the rights of the scheme member from whose benefits the pension credit derived (but see PSI24.1.4 in respect of the lump sum benefits). This achieves an underlying principle of the new pension sharing on divorce provisions that came into force on 1 December 2000 that there should be a “clean break” between the divorcing couple in relation to pension matters.