What happens if a Pension Sharing Order (PSO) deadline is breached?
What happens if a Pension Sharing Order (PSO) deadline is breached?
Introduction.
We came across this scenario very recently with a client and felt it was worth sharing what the impact of missing a PSO deadline is and what the options are for resolving it.
What is a Pension Sharing Order (PSO)?
Pension Sharing Orders are the most common method of sharing one spouse’s/civil partner’s pension with their ex-spouse/civil partner in a divorce or dissolution. While other methods are available, pension sharing is now the most common.
When pension benefits are shared, they are passed irrevocably to the ex-spouse or ex-civil partner.
You can head over to our dedicated divorce finances webpage to learn more about what happens to pensions and money on divorce.
Who sets the timescales for a PSO?
The whole process for pension sharing is complex and requires legal advice on both sides of the divorce. Alongside that legal advice, financial advice is essential in ensuring that both parties fully understand the impact of any potential settlement on their immediate and long-term finances.
In terms of timescales, the key stages are:
The trustees/administrators of the relevant pension scheme may be notified that a pension sharing order (known as the ‘Order’) may be made in respect of the scheme. The Order will express the pension share to be transferred to the ex-spouse/civil partner as a percentage figure of the overall pension benefits.
The Order contains an ‘effective date’ (stated in the pension sharing annex).
The ‘implementation period’ is a period of four months from the effective date (see below) during which the pension trustees/administrators must implement the Order by transferring the cash equivalent value of the relevant pension benefits to the ex-spouse/civil partner.
The implementation period does not begin to run until the later of (i) the effective date of the Order and (ii) the date on which the pension trustees/administrators are in receipt of all the information required by them to implement the Order.
What happens if a PSO deadline/implementation period is breached?
The key is to identify what has caused the breach of the four month period and who is at fault. While this may seem like a blame-game, this is critical in ensuring the process is resumed in the swiftest, most appropriate and fairest way.
Following this, several important actions will need to be taken:
The cash equivalent value will need to be recalculated. This in turn will likely lead to re-negotiations and a delay in the sharing the pension (and other) assets.
Look at the Order, as that should state who is responsible for ensuring the PSO is actioned and within what timescales. This could be the pension trustees/administrators or it could be the spouse/civil partner who is sharing some or all of their pension, or the spouse/civil partner who is receiving it.
If that party has not done what they should have done, the receiving spouse/civil partner is likely going to incur costs, suffer delays and possibly lose out financially. Assuming it was not their fault, the receiving spouse/civil partner should lodge a complaint with the at-fault party.
If the complaint is to a pension provider/administrator or pension trustees, a formal complaints process must be in place, which allows the provider/administrator/trustees up to 8 weeks to provide a final response. If the complainant is not happy with that response, they can refer their complaint to either the Pension Ombudsman or Financial Ombudsman Service (within 6 months of the final response).
If the complaint is to a solicitor, a formal complaints process must be in place which allows the solicitor up to 8 weeks to provide a final response. If the complainant is not happy with that response, they can refer their complaint to the Legal Ombudsman (within 6 months of the final response).
If the receiving spouse/civil partner is at fault, then all they can do is go back to their solicitor and ask for it be completed but they will be liable for any costs involved in doing this.
Beyond all of this, what’s critical is that the PSO is actioned as instructed within the Order. When the pension trustees/administrators have implemented the Order (i.e. they have made a transfer payment of the appropriate sum to the ex-spouse’s/civil partner’s pension provider), they must serve written notice on both parties to that effect. Only once you have this confirmation can you breathe a sigh of relief that the pension, at least in terms of ownership, has been resolved.
What happens after the PSO has been implemented?
The Order will only state how much pension should be transferred to the ex-spouse/civil partner. What it will not deal with is some equally critical points, including:
where specifically the pension money should be transferred to;
where it should be invested;
what options should be considered for managing the pension; and
ultimately how and when money from the pension should be drawn upon.
For this financial advice is a must.
What’s next?
Wherever you are in the UK, we invite you to book a free initial consultation with one of our experienced financial advisers. Whatever stage you are at in the divorce process, we provide expert advice tailored to your needs. Based in Tunbridge Wells, Kent, we proudly serve clients nationwide.
Locally, we serve clients across Kent, including Ashford, Maidstone, Sevenoaks and Tonbridge. In East Sussex, we have clients in Bexhill, Crowborough, Eastbourne, Hastings, Heathfield and Uckfield.
Don't forget, this article offers general financial information and should not be taken as personal advice. Remember that investments and pensions can go up and down in value, so you could get back less than you put in. Tax rules can change and will depend on your individual circumstances.