Creeping up the charts at No. 4 is the sensitive topic of Divorce
Q: I am divorcing and we are considering a Pension Sharing Order (PSO). I have a combination of 75 Scheme benefits and 15 Scheme benefits. I would like to protect my lump sum so it is not reduced when the pension comes into payment, is it possible to do this?
A: For the purposes of PSOs the pension in question is first valued. This is known as a Cash Equivalent Value or CEV and the value given is based on the annual pension accrued to date and includes the lump sum. Once it has been decided how much ‘value’ will be given up it is expressed as a percentage of the overall value. Where there are accrued benefits on more than one scheme, each scheme will be given a separate value.
Because the value includes the lump sum it is not possible to take this out of the calculation and protect it. In the case of the 75 Scheme (and the 05 Scheme) there is an automatic lump sum payable. When the pension is shared the annual pension will be reduced and so too will the lump sum.
In the case of the 15 Scheme there is no automatic lump sum but there is the opportunity to commute some of the annual pension and create one. If there has been a PSO applied, the pension will be reduced and so too will the amount available to commute and create a lump sum.
The ex-wife (or husband) will also receive a lump sum based on the value of the share they have received.
The only exception to this is if the pension has already come into payment before the PSO has been applied. In this case only the annual pension only will be shared as the lump sum will already have been paid.
Later today we’ll have a Q&A on Commutation which is currently standing at No 3 in our enquiry chart