Pension Sharing Orders (PSOs)

Introduction

A Pension Sharing Order (PSO) is a legal mechanism used to divide pension assets between spouses following divorce. Introduced under the Welfare Reform and Pensions Act 1999, PSOs offer a clean financial break, allowing each party to manage their pension independently post-divorce.

Important Notes

• PSOs are designed to sever financial ties between ex-spouses by transferring a portion of one party’s pension to the other.
• The member whose pension is subject to the PSO receives a pension debit. The ex-spouse receives a pension credit, which is transferred into a pension in their own name.
• The pension credit can be retained within the existing scheme or transferred to a new pension arrangement chosen by the ex-spouse.
• The Cash Equivalent Transfer Value (CETV) is used to determine the value of the pension rights being shared.
• Contributions or Transfers made after the effective date are excluded from the PSO.
• Any income drawn by the member after the effective date does not reduce the amount due to the ex-spouse.
• Beneficiary pensions (e.g. death benefits) cannot be shared.

Disqualifying Pension Credit:

A disqualifying pension credit arises when the pension credit is derived from uncrystallised funds. The ex-spouse receiving the credit may be entitled to take a Pension Commencement Lump Sum (PCLS) or an Uncrystallised Funds Pension Lump Sum (UFPLS) when they reach retirement age.

Qualifying Pension Credit:

A qualifying pension credit occurs when the pension credit is derived from crystallised funds. The ex-spouse will not be entitled to a tax-free lump sum from this credit. Instead, the funds will be accessible as taxable income when they reach retirement age.

Effective Date

The effective date is legally significant and determines which pension assets are included in the order. It is defined as the later of:

• The date the decree absolute (or final order) is issued, or
• 28 days after the PSO is granted by the court.

Implementation Requirements

To implement a PSO, SS&C requires the following documents:

1. Court stamped copy of the Pension Sharing Order and Annex.
2. Copy of the decree absolute or final order.
3. Instruction from the ex-spouse’s chosen pension provider confirming acceptance of the pension credit.

Implementation Timeline

• The implementation period begins once all required documents are received.
• Legislation mandates that the PSO must be implemented within four months of this date.
• SS&C will use the date of receipt of complete documentation as the valuation date.
• SS&C will aim to process the PSO as promptly as possible, often well within the statutory timeframe.