What is a pension adjustment order?

It is a court order that alters the benefits that a member has under pension scheme rules. It overrides the rules and the scheme trustees must follow it. Pensions are the last port of call when a court is deciding how the spouses' assets are to be split on a divorce. The court looks at all the other assets of the parties before deciding to make any adjustment to pension benefits. That said, both parties to the divorce are required to disclose to the other side all their assets. Each spouse must tell the other of the full extent and value of their pension benefits.

Action point 1

The divorcing spouses need to establish what their pension rights are. They can do this by asking their own pension scheme trustees for the relevant information. A non-member spouse (the person who is not the scheme member) has a right to obtain copies of the constituting documents of the pension scheme. The non-member spouse is not permitted under the legislation to receive the details of the actual accrued entitlements (and values) of the member spouse's pension benefits. That information can only be disclosed via the member spouse. Of course, if the non-member spouse considers that there is failure to adequately disclose, he or she can always apply to the court to direct appropriate disclosure. Our family law department suggests that as well as providing a copy of the policy and rules of the pension scheme an up to date policy statement should be provided to the non member spouse also.

Action point 2

The parties need to establish if adequate provision can be made for both without recourse to the other's pension scheme. They should take into account what may happen on death-in-service. Spouses: missing the opportunity to access death-in-service benefits Most likely, the pension scheme will provide benefits on death-in-service. Perhaps an order directing the scheme trustees to pay such benefits to the non-member spouse would be appropriate. These types of orders can only be applied for within a year of the divorce decree.

Action point 3

It is usually in the best interests of both spouses to agree the financial terms of the divorce and this will be likely to save costs.

Action point 4

Send a draft of any proposed pensions adjustment order to the trustees (in advance of it being presented to the court for issue) for their review. This should save time and money.

The position of the trustees

The trustees must be given advance notification of a proposed application for a pensions adjustment order and may attend in court when this issue is being ruled upon.

Action point 5

The scheme trustees should consider whether, in the circumstances, attendance may be appropriate. The most common pitfall is that an order is granted which is not compliant with the legislation and is not capable of being operated by the trustees.

Trustees being sued for maladministration

The order only kicks in when an event triggering payment of a pension benefit under the scheme rules occurs (such as death, leaving service or retirement of the member spouse). Consequently, when receiving an order, trustees must avoid the temptation to do nothing about it until any of these events occur. Failure to confirm that the order works leaves the trustees at risk of a claim to the pensions ombudsman by the member (or member spouse) for maladministration. This could happen many years later. Thus a badly drafted pensions adjustment order is a ticking time bomb.

Action point 6

The trustees must check the order to confirm that they are comfortable that it can be operated in practice. If the order is incorrectly drafted, the trustees should return it to the divorcing spouses and ask them to get it reissued in a correct format. It has been the experience of our family law department that it can take a number of weeks for the draft pension adjustment order to be approved by the trustees so it is advisable to send the proposed pension adjustment order to the trustees well in advance of the ruling of the divorce so that they have sufficient time to consider the proposed order.

Watch out for trustee charges

The trustees are permitted under the legislation to recoup from the spouses' scheme entitlements any charges incurred by them in implementing the order (or dealing with it). This fact alone should send shockwaves to spouses - it is up to them to make sure that the order works; otherwise, the costs of putting it right may be visited upon them.

For further information please contact Fiona Thornton or Gillian Dully.

For information in relation to divorce and other areas of family law please
contact Rachel Murphy.