What are Pension Sharing and Pension Attachment orders?
Over recent weeks, I’ve had many enquiries about the operation of Pension Attachment Orders (otherwise known as Earmarking Orders).
It seems to be the case that those people who’re subject to these orders are now reaching retirement. These orders, for the most part, came into force over 14 years ago. The Family Law Court gained powers to make a Pension Attachment Order in 1996. In 2000, it acquired the further power to make Pension Sharing Orders.
What’s a Pension Sharing Order?
The effect of a Pension Sharing Order is to divide an existing pension fund into two separate, independent pension funds. Each spouse will, in due course, draw down monies in such a way as they each wish from their own fund without any reference to the other.
What’s a Pension Attachment Order?
Pension Attachment Orders are entirely different. They’re treated as being the same as Lump Sum (a payment of capital) and Maintenance Orders.
For example, if the husband was the spouse with the pension, a Pension Attachment Order may require a pension fund to pay to a former wife 25% of the maximum lump sum that could be paid to the husband.
So if, say, a husband is entitled to receive a lump sum payment on retirement of £20,000, the pension provider has to deduct from the lump sum £5,000 and pay it to the former wife. If, at the same time, the court made a Pension Attachment Order in relation to income of 25%, then the pension provider will deduct that percentage from the monthly payment and pay it to the former wife.
But if the former wife has remarried, she’s not entitled to receive the income element. Although she can still receive the capital sum.
Other problems with Pension Attachment Orders:
- The Attachment Order will end on the death of the pension holder (i.e. the husband in the example above). If the husband dies before he draws his pension, then the former wife will get nothing from the pension provider.
- The whole of the pension payment is taxed in the hands of the pension holder and not the spouse.
- If the husband has continued to pay into the fund after the order, then the former wife will get the benefit of the total payments.
What does this mean for you?
Because of the popularity of Pension Sharing Orders and the lack of Pension Attachment Orders since 2000, the problems above are probably only going to affect a small number of people.
But it’s likely that both former husbands and wives don’t appreciate how the effect of the Pension Attachment Order can change depending on the choice of the pension holder on how he wishes to draw such monies.
If he doesn’t draw then no payment will be made to the former wife. And, obviously, if the former wife has remarried she’s not entitled to any part of the monthly payment from the pension fund. The pension holder will be responsible for telling the pension fund if his former wife has remarried to ensure they don’t make the monthly payment to his former wife. He may also have to provide proof of the remarriage.
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