The Department for Work & Pensions (DWP) has announced that it plans to bring regulations into effect on 6 April 2009, which will amend the rules on the payment of pension credit benefits held in occupational pension schemes (OPS).
The target date for their introduction was originally going to have been 1 October 2008. However, certain institutions, including the Ministry of Defence and the Scottish Public Pensions Agency, said that they would not be able to implement the change in time.
Once introduced, an ex-spouse will be allowed to receive benefits from age 50 (55 from 6 April 2010), rather than having to wait until the ‘normal benefit age’ (NBA) of their ex-spouse’s OPS - usually between 60 and 65.
The forthcoming amendments will also enable payment of certain lump sums before NBA (for example, tax-free cash), including where ill-health permanently prevents a pension credit member from following their occupation.
Another welcome development, in connection with pensions and divorce, is the planned abolition of ‘safeguarded rights’.
Safeguarded rights, (that is, pension credit benefits derived from contracted-out rights), cannot be paid before age 60 and cannot be paid as a lump sum.
However, debate on the Bill has taken longer than originally expected (largely because of the volume of Government amendments laid) and it is not expected to receive Royal Assent for some time.
As a result, the Government agrees that the regulations, outlined above, should take effect at the same time that safeguarded rights are expected to be abolished, namely on 6 April 2009.
Pearson Jones’ view
Under present legislation, any pension credit established within an OPS cannot be accessed until the NBA of the scheme, usually 60 or 65.
From 6 April 2009, access to pension credit benefits will be allowed from age 50 (age 55 from 2010). Therefore, Family Lawyers seeking immediate maintenance from an ex-spouse, on behalf of their Client, may be able to consider Pension Sharing within an OPS, as a means of providing some or all of that maintenance.
However, taking OPS benefits earlier than NBA usually involves actuarial reductions. Careful consideration, ideally in conjunction with a suitably-qualified IFA, is therefore essential.
The proposed abolition of safeguarded rights is a welcome simplification.
The above comments are based on our understanding of the proposed changes, which could be subject to further change.