2. THE
LEGAL FRAMEWORK—CLAUSES
1 AND 3, CLAUSE
27 AND SCHEDULE
1
2.1 Pension sharing orders: England and Wales
Retrospection
We do agree that retrospection would be damaging.
Prescribed forms
We recommend that as much standardisation as
possible be introduced by using prescribed forms. We hope that
the only variables, other than identifying details of the parties
and the pension arrangement concerned, will be the amount or percentage
that is to be split. Presumably there will be a separate form
or order for each pension arrangement to be shared, because the
amount/percentage may well be different. We see from your explanatory
notes that there is to be a prescribed form in Scotland (Chapter
4, paragraph 12) but they are silent on the point in relation
to England and Wales (Chapter 3, paragraph 15).
On a similar topic, experience has shown that
there is a need for prescribed forms for earmarking as well. Perhaps
they could be partially completed by the pension arrangement concerned,
so that it can identify the options available under its own benefit
structure. The APL would be happy to offer any assistance that
may be required in drafting such forms.
Multiple orders
The legislation is unclear on the subject of
multiple pension sharing orders, specially where those orders
may be made at different dates and, possibly, in relation to different
marriages of the same couple. We would have expected that there
could be two orders in relation to the same scheme and the same
marriage, if both parties were members of the same scheme (although
no doubt it would be more usual for there to be just one order,
netting off the difference between the parties' rights). We would
also have expected that an order could be made in relation to
a scheme notwithstanding the fact that the same couple may have
been previously married and divorced and therefore have a previous
order against that scheme. It would be helpful if you could clarify
the scope for multiple sharing or earmarking orders to be made.
We comment in more detail on appeals and replacement orders below.
2.2 Some specific queries
England and Wales
Presumably a pension arrangement positioned
outside the jurisdiction of England and Wales can be the subject
of a pension sharing order under the MCA. It is jurisdictionally
possible to obtain property adjustment orders in relation to property
which is situated outside the jurisdiction of England and Wales,
and the treatment of pension rights should be consistent. Where
a pension scheme covers employees in all parts of the UK there
may be doubt as to whether trustees can, or are obliged to, comply
with a "cross-border" orders. Could the legislation
please make it clear that a scheme established in England and
Wales can comply with an order made in a Scottish or Northern
Ireland divorce, and vice versa?
Paragraph 2(2) of Schedule 1
We note that it will no longer be possible for
an applicant for financial relief to obtain a variation of a marriage
settlement in relation to a pension arrangement (the Brooks
-type order). We feel that this is probably the right approach,
because of the lack of clarity about the ambit of this jurisdiction.
The combination of the earmarking and sharing provisions should
render the Brooks expedient unnecessary. However, Brooks
orders do not involve shadow Inland Revenue limits for the member
and so they do allow for the member to rebuild his or her rights.
Paragraph 2(4)
Why does the definition of "pension arrangement"
differ from the definition of "pension arrangement"
which, pursuant to Schedule 4 paragraph 4(4), will feature at
MCA s.25D(3)?
Paragraph 3
It is noted that pursuant to s.24C(1), there
will be no scope for a pension sharing order to take effect before
a divorce order in one of those exceptional circumstances which,
by contrast, will be applicable in relation to a property adjustment
order pursuant to MCA s.23B(1). We welcome this approach, even
if it may mean there is inconsistency of treatment as between
pensions and other assets. Pension schemes usually (although not
always) provide generous spouse's benefits if the member dies
while married, and to split the rights in advance of divorce would
result in much more complexity because these spouse's rights would
have to be taken away.
S.24C(6) says that the Court is prevented from
making a pension sharing order where the pension arrangement concerned
is the subject of any earmarking order in relation to the marriage.
Presumably an earmarking order from a previous marriage of the
same couple would survive, and would not preclude the making of
a sharing order on the current divorce.
Is it intended that a sharing order could have
effect a few years after the divorce, where there is to be maintenance
for a limited period followed by a clean break? If so, we would
have thought there might be an earmarking order just in relation
to the lump sum death benefit in the meantime. We believe pension
schemes could operate earmarking of a lump sum death benefit alongside
a pension share even after the share has been implemented, as
long as it is clear how the debit will affect the benefits payable
on death in service (which is not clear at the moment).
Paragraph 6
It does appear to be possible for there to be
a second pension sharing order made in relation to the same arrangement
in the circumstances envisaged by the new variation jurisdiction
provided for by MCA s.31(7B)(ba). Pursuant to s.31(7G), the first
pension sharing order would first have to be discharged. Presumably
the mechanism for the discharge of a pension sharing order is
under s.31 of the MCA.
It is questionable whether the persons responsible
for a pension arrangement would be able to unscramble a pension
sharing order on its discharge, and substitute a different one.
We expect that schemes could live with an internal transfer made
following the first pension sharing order; and, following its
discharge, subsequently an internal or external transfer following
a second pension sharing order made upon a variation application.
(Would the scheme be putting the parties back in the position
they would have been in if the order had never been made, or would
the conversion back be on the same terms as would apply to the
creation of a pension debit and credit at the time the order is
discharged?) However a second order could not be implemented if
an external transfer had already been implemented, or if benefits
had come into payment, under the first order (the circumstances
set out in the new s.40A(2)).
2.3 Separation
It seems anomalous that although a spouse will
be able to obtain an earmarking order in the context of a separation
order under the Matrimonial Causes Act 1973 ("MCA")
s.25B and C, pension sharing orders will not be available. It
is possible to envisage financial prejudice to a spouse who wishes
to obtain a separation rather than a divorce order.
2.4 Stays and appeals
Appeals
The effect of s.40A, inserted by paragraph 9
of Schedule 1, limits the scope of a pension sharing order where
an appeal has begun (is this meant to mean that Notice of Appeal
has been served?) after the pension sharing order takes effect.
We comment below about the timing of implementing the order. We
believe a party may apply for leave to appeal out of time, for
example where there has been a fraud or misrepresentation by a
party leading up to a financial order, or where there has been
a dramatic change of circumstance within a short time of the financial
order. In such cases the Court may not set aside the order if
the circumstances set out in s.40A(2) apply.
The inter-relation between s.40A(2) and (3)
on the one hand and s.40A(4) on the other hand is not entirely
clear. S. 40A(2) states that the Court may not set aside the order
or reduce the percentage, in the circumstances recited. In such
a case, the Court may make such order as it thinks fit for the
purpose of putting the parties, as nearly as possible, in the
positions they would have been in had the order not been made,
or had a different percentage been specified. Could you clarify
what kind of order the Court could make in these circumstances?
It does not seem to be possible under the prospective
legislation for a party to obtain a higher percentage pension
share than that originally specified, which may be unjust where
there has been fraud etc.
It is not clear to us what would happen if either
party died before the appeal is decided.
Staying the order
Pension arrangements will need to take care
not to implement an order prematurely. The explanatory note on
page 8 of Part 2 states that a pension sharing order will be stayed
(and so shall not take effect) until 21 days after it is made,
in order to allow time for the parties to appeal. The note also
states that if an appeal is begun within that period the order
will be further stayed until the appeal is disposed of.
The following points arise:
— Will a member be able to request
a transfer during the period of the stay, or retire or leave service?
Presumably in some cases the order might be stayed for a long
period and it needs to be clear whether, for example, time limits
for paying transfer payments would be running against trustees.
— We cannot see provision for such
stays in the Pension Sharing Bill itself.
— The 21 day period may be unduly short,
in the case of an order made in the High Court, for which a period
of four weeks is allowed for an appeal; there seems no good reason
for the period of automatic stay to be less than the time provided
for an appeal of a High Court Order.
If either party dies while the order is stayed,
it seems that Clause 10(2) will apply (death before implementation).
Clause 3(1)(b) of the Bill
It seems that pension sharing will be able to
be achieved other than by a court order under the MCA.
Reference is made to provision in a qualifying
agreement, but we note this procedure seems to apply only if there
is no pension sharing order already in relation to the same pension
arrangement, in relation to this marriage or (it seems from s.3(5)(c))
a previous one.
