NISPI

Contents

Background

Pension scheme rights can often be the most valuable part of the couple's assets which need to be considered when a marriage ends. From 1 December 2000 legislation will come into force which will allow divorcing couples the option to share their pension assets as a part of the overall divorce settlement. Apart from the basic State Retirement Pension and survivors pensions, which will not be shareable, it will be possible to share most types of occupational and personal pension rights including those built up in the State Earnings Related Pension Scheme (SERPS).

Pension sharing will be available alongside existing methods of dealing with pension rights on divorce: offsetting and earmarking. The new measure will help to provide courts with a comprehensive range of options for dealing with pensions at the time of divorce. Pension sharing will:

  • provide greater flexibility and choice for divorcing couples and the courts;
  • allow pension rights to be treated in a way which provides for the fairest overall settlement of assets in each divorce case; and
  • increase the opportunity for divorcing couples to achieve complete financial independence through a “clean break” settlement.

Pension Sharing on Divorce was introduced as part of the Welfare Reform and Pensions Bill and will be available in all divorce and nullity proceedings which begin on or after 1 December 2000. After this date it will be possible for a court to issue a pension sharing order or agreement to the pension scheme or provider as a part of the divorce settlement.

Once a couple decide to go ahead with divorce proceedings a court can order that pension sharing is to apply. The court will issue copies of the pension sharing order or agreement to the pension scheme or provider.

Safeguarded rights

Rights of a scheme member derived from membership of a contracted-out occupational or Appropriate Personal Pension (APP) scheme which are transferred to the former spouse as a result of a pension sharing order or agreement become “safeguarded rights” and therefore will be distinguished from the contracted-out rights built up by a member of a contracted-out occupational or APP scheme.

Scheme rules can specify whether all of the accrued rights that are subject to a pension share become safeguarded rights, therefore, safeguarded rights may include some non contracted-out rights. In addition, the safeguarded rights might include safeguarded rights from a previous divorce.

The requirements for safeguarded rights broadly reflect those for contracted-out rights. In particular the government wish to ensure that safeguarded rights (which are wholly or in part financed by rebates of National Insurance contributions, and in the case of APP schemes, tax relief on the employee's share of the rebate) are securely protected and used for the purpose for which they are intended - to provide an income in retirement.

The “safeguarded” rights will be ringfenced and will be subject to broadly the same conditions that apply to post -1997 salary related contracted-out rights or protected rights. However, schemes will not be required to provide survivors' benefits from safeguarded rights and they will not be tracked by NI Services to Pensions Industry (NISPI - formerly COEG).

A pension in respect of safeguarded rights is required to start being paid between the ages of 60 and 65, unless early payment is appropriate, for example because of ill-health.

As safeguarded rights will not be tracked or monitored by the department, it is important, therefore, that schemes maintain accurate records when a former spouse's rights are preserved in the scheme, transferred or bought out through an insurance policy. Schemes should also keep details of the pension sharing order, as they will need to record the percentage of the share on the member's pension account.

Calculation services

Occupational pension and APP schemes will be required to provide a valuation of accrued pension rights to enable the courts to decide on the fairest overall settlement of assets.

To assist schemes with this process, the calculation services currently available can be used to request a Guaranteed Minimum Pension (GMP)/ Contracted-out Deduction (COD) calculation at any time during the pension sharing on divorce procedures.

As with the existing Individual Calculation Service, calculations for pension sharing cases will be provided free of charge.

Pension sharing on divorce notification

Where pension rights have been shared, the courts will formally notify the scheme which will, in turn be required to notify NI Services to Pensions Industry (NISPI - formerly COEG). Schemes will have 4 months in which to implement the pension sharing order.

A new form “Pension Sharing on Divorce Notification” CA2202 (PDF 44K), has been introduced for completion by scheme administrators and providers to notify COEG of the pension share. A copy of this is shown at Annex A. Supplies of the form will be available from 1 November 2000.

As with the existing Individual Calculation Service, calculations for pension sharing cases will be provided free of charge.

On receipt of the notification NI Services to Pensions Industry (NISPI - formerly COEG) will update the National Insurance (N.I.) accounts of both the member and the former spouse to show that a “Pension Share” has occurred.

Details from the CA2202 (PDF 44K) will be held on a database, which can be interrogated to answer any specific enquiries about the pension share itself.

Contracted-Out Deduction

When a member's pension rights are shared with a former spouse, a full COD will always be deducted from the member's Additional Pension under SERPS. The COD will not be reduced to take account of any GMP or protected rights that are subject to a pension sharing order / agreement.

Statements of GMP liability

The calculation of contracted-out pension rights does not take account of any pension rights shared on divorce, therefore, the full GMP amount will continue to be notified. All statements which show a GMP amount (except for those issued by magnetic media) will include the notation “The amount quoted does not take account of any pension rights shared on divorce” whether or not a pension share has taken place.

Although pension sharing on divorce will not be implemented until 1 December 2000 this general reminder will start to appear on statements issued from the end of October 2000.

Supervision of Safeguarded Rights

Schemes that opt to hold safeguarded rights after having elected to contract-out will not be required to advise COEG that they intend to start holding safeguarded rights. Instead, all schemes that hold a contracting-out certificate will need to indicate at triennial re-assurance whether or not they hold safeguarded rights. If they do, the schemes will need to confirm that they hold safeguarded rights and meet the prescribed requirements.

Cessation of Contracting-Out

When a scheme ceases to be contracted-out, trustees will have a period of 2 years in which they must make arrangements to secure all safeguarded rights held within the scheme.

Securing safeguarded rights

Securing safeguarded rights - salary related schemes

Safeguarded rights may be secured by:
  • Transfer to a Contracted-out Money Purchase (COMP) scheme or the active COMP part of a Contracted-out Mixed Benefit (COMB) scheme
  • Transfer to a Contracted-out Salary Related (COSR) scheme or the active COSR part of a COMB scheme
  • Transfer to an Appropriate Personal Pension (APP) scheme
  • Purchase of an Annuity
  • Preservation within the scheme

Securing safeguarded rights - money purchase schemes

Safeguarded rights may be secured by:
  • Transfer to a Contracted-out Money Purchase (COMP) scheme or the active COMP part of a Contracted-out Mixed Benefit (COMB) scheme
  • Transfer to a Contracted-out Salary Related (COSR) scheme or the active COSR part of a COMB scheme
  • Transfer to an Appropriate Personal Pension (APP) scheme
  • Purchase of an Annuity
  • Preservation within the scheme
  • Provision of a pension
  • Appropriate policy of insurance

As safeguarded rights will not be tracked or monitored by the Inland Revenue we will not issue calculations or membership lists to the life office/administrator.

Schemes should advise us as soon as all the safeguarded rights held by the scheme have been secured. Details of the individual arrangements are not required.

Approval will be confirmed by the issue of a letter to the scheme.

The restoration of state scheme rights (deemed buyback)

Safeguarded rights can not be restored in the State Scheme. They must be secured by some other approved means.

Where scheme trustees intend to secure members' contacted-out rights in the State Scheme, to enable us to calculate the correct Technical Amount for the restoration of their rights in SERPS, the occupational pension scheme should let us know about any members whose contracted-out rights have been shared with a former spouse as part of the divorce settlement.

Further information

HMRC National Insurance Contributions Office
SDG Technical (Pensions)
Chillingham House
Benton Park View
Longbenton
Newcastle Upon Tyne
NE98 1ZZ

Tel:  0191 2250267

Fax:  0191 2250053