Home Office circular 004 / 2003
THE POLICE PENSION SCHEME-PENSION SHARING ON DIVORCE
Dear Chief Officer
This circular provides information on the Police Pensions (Pension Sharing) Regulations 2002 (Statutory Instrument 2002 No. 3202) that come into force on 1st February 2003. These update the Police Pension Regulations to reflect the changes in procedure that have been applied administratively since September 2001.
- HOC 37/2001 provided guidance on pension sharing. This circular explains the new Regulations and gives further guidance where necessary. It should be brought to the immediate attention of the administrators of the Police Pension Scheme, payroll officers, and force personnel officers.
Until now, pension sharing has been proceeding on an administrative basis. HOC 37/2001 provided guidance on pension sharing and earmarking and contained model administrative procedures, forms, letters, GAD guidance notes and guidelines for charging.
The Police Pensions (Pension Sharing) amendments (Statutory Instrument 2002 no. 3202) will formalise this process within the Police Pensions Regulations, backdated to 1 December 2000. Pension sharing may apply to active and deferred scheme members, and to members whose benefits are in payment. It will not apply, however, to benefits in payments to widows, widowers or any other beneficiaries of scheme members.
The guidance below should be read in parallel with the previous Home Office circulars about pension sharing.
Additioins to the pension sharing guidance
6. HOC 37/2001 gave comprehensive guidance on the law and procedures and remains
valid, but there are some additions to note.
- According to the Welfare Reform and Pensions Act 1999, the valuation date for pension sharing can be any date within the following four month implementation period but we recommend, as with other public service pension schemes, that for consistency always use the first day of the implementation period as the valuation date.
Pension Debit Member
Children’s rights - Regulation D6
8. The Department for Work and Pensions, Inland Revenue and Treasury are still considering the correct interpretation of the 1999 Welfare Reform and Pension Act regarding the impact of pension sharing and children’s rights and so we have left open the door if the policy changes to make deductions as appropriate. We will update pension administrators as and when this becomes necessary. In the mean time our policy remains that pension sharing should not affect children’s benefits.
Pension Credit Member
Commutation of the pension credit benefit: serious ill health - Regulation M3
9. There is no provision for the pension credit member’s pension to be paid early on grounds of ill health. However, if at any stage before normal benefit age (which for a pension credit member is aged 60), a credit member is expected not to live longer than 1 year, the whole of the pension credit may be commuted for a one-off lump sum payment.
The lump sum is equal to the amount equal to the annual rate of the pension at the point of commutation, multiplied by 5.
Points to note:
10. Unlike commutation in normal cases there is no set procedure requiring written notice. We would expect that the relevant police authority must have produced to them or obtain a certificate from an independent registered medical practitioner as to whether in his opinion the pension credit member suffers from serious ill-health (i.e. with a life expectancy of less than one year from the date on which commutation is applied for). Administrators will need to ensure the pension credit member or someone legally empowered to act on his or her behalf, understands and gives written agreement to the terms of the commutation including that once a pension is commuted under this rule, the payment discharges the relevant police authority from all liability.
- Regulation H7 and Regulation L2 also apply to pension credit members - Regulation M5
- H7 refers to limitations on appeals. L2 refers to funds out of which and into payments are to be made.
Additional Voluntary Contributions
- AVCs and FSAVCs may be subject to pension sharing but are not necessarily
included in pension sharing. When a pension sharing order is made in respect of a member of the Police Pensions Scheme who has an in-house AVC scheme, and the order specifically relates to the member’s AVC fund, that fund will be reduced by the amount or proportion prescribed. The additional benefits which a pension debit member may purchase with AVCs will be restricted to those which he or she could have purchased had there been no pension debit. The points to note where pension sharing may affect the Police Pensions (Additional Voluntary Contributions) Regulations 1991, are set out below:
- Discharge of liability - Schedule 1A, paragraph 1
- In order for the police authority to discharge their liability they must invest the
amount of the credit to purchase from an insurance company an annuity according to the election made by the pension credit member.
- Death of credit member before the pension becomes payable - Schedule 1A, paragraph 2 and paragraph 7
- The relevant police authority should realise the investments without purchasing an
annuity and pay the proceeds to the member’s personal representatives as a lump sum payment. The Police Authority will discharge liability in respect of a pension credit by making this lump sum payment.
- Pension credit benefit - Schedule 1A, paragraph 3
- The pension credit member will be credited with the proportion ordered by the court of the member’s AVC fund. The pension credit member will be able to elect to have the pension credit invested in one of the ways prescribed in the 1991 Regulations, in order to purchase a retirement pension and to have a proportion payable as one or more dependants’ pensions.
The pension will be paid no earlier than age 60 and for life, except in cases of serious ill-health or if the aggregate total benefits payable equal less than £260 per annum.
If the pension credit member has reached the age of 75 and not given a notice of election the police authority may realise the investments to provide such benefits as appear to them to be suitable.
- Outward transfers - Schedule 1A, paragraph 4
- To transfer the pension credit out of the in-house AVC scheme in order to make alternative pension provision the pension credit member must give written notice. Transfers out of AVCs for pension credit members must be independent of main scheme benefits and the Inland Revenue advise that any transfer out of AVCs to an FSAVC can only be made to one in which the transferee is already a participator.
- Commutation before normal benefit age - Schedule 1A, paragraph 5
- In cases of serious ill health (i.e. with a life expectancy of less than one year from the date on which commutation is applied for) the police authority can realise the investments, without purchasing an annuity, and pay to the credit member as a lump sum the proceeds. See paragraph 9 above for procedure to follow in such a case.
- Commutation of the whole of pension credit at normal benefit age - Schedule 1A, paragraph 6
- If the aggregate of total benefits payable to a pension credit member does not exceed £260 at normal benefit age, or a credit member is suffering from serious ill health at normal benefit age (aged 60), the credit member is entitled to the commutation of the whole of the benefits payable. See paragraph 9 above for procedure to follow in cases of serious ill-health.
- Separate treatment of pension credit rights - Schedule 1A. paragraph 8
- If a pension credit member has rights under the scheme apart from his pension credit rights, the pension credit rights are to be treated as provided separately for the purposes of all requirements of the Inland Revenue in relation to limits on benefits.
Notes on valuations of AVCs for pension sharing purposes
- The member or the Court may request a valuation of the member’s pension benefits. Where an active or deferred member has an in-house AVC ‘pot’ (not life assurance) the police authority should write to the Police Pension Scheme AVC provider requesting a CETV valuation of each AVC ‘pot’. The police authority should specify the date to which each AVC ‘pot’ is to be valued i.e.:
a) In England and Wales, the date of receipt of the member’s / Court’s request, or
b) in the case of divorce or nullity proceedings lodged in Scotland,
- the date of receipt of the member’s /Court’s request if it is received 12 months or less after the relevant date The relevant date is the earlier of the date the parties finally ceased to cohabit or the date if service of the summons in the action for divorce. Section 10(7) of the Family Law (Scotland) Act 1985 states that in determining the date on which the parties to the divorce ceased to cohabit “no account shall be taken of any cessation of cohabitation where the parties thereafter resumed cohabitation, except where the parties ceased to cohabit for a continuous period of 90 days or more before resuming cohabitation for a period or periods of less than 90 days in all.”, or
- the relevant date See footnote above if the date of the member’s / Court’s request is received is 12 months or more after the relevant date
and the date by which the valuation is needed in order to comply with the appropriate deadline for providing information to the member / Court.
It will be prudent to request a valuation in respect of each investment ‘pot’ the member has (e.g. with profits, managed fund, building society, etc.)
Technically, the Government Actuary is required to specify how a PPS AVC ‘pot’ is to be valued. In practice, the actuary to the AVC provider may be able to determine the valuations in accordance with standard actuarial guidelines.
The AVC provider will need to provide the valuation(s) to the police authority within the period specified by the police authority. The police authority must then include the valuation(s) in the information sent at the first request of the member / Court.
If a “Pension Sharing Order” is received which requires an AVC ‘pot’ to be shared, the police authority will need to ask the “ex-spouse” where he / she wishes the share of the AVC ‘pot’ to be invested. It will be necessary to impose a deadline for a decision well within the 4 month “implementation period” and state that if no decision is received, the share of the AVC ‘pot’ granted by the Court will be invested in a named investment route of the police authority’s choice.
Where the pension credit member is already aged 60 or over, the police authority will
need to ask the “ex-spouse” which type of annuity he / she wishes the authority to purchase for him / her (e.g. flat rate, single life, no 5 year guarantee, etc). With effect from 10 February 2003, an open market annuity option should be offered. There is flexibility for the pension credit member to defer purchasing an annuity until age 75.
As soon as the police authority has received all the relevant documentation and, if appropriate, any up-front Pension Sharing charges have been paid, the authority should send a copy of the “Pension Sharing Order” to the AVC provider. The police authority will need to inform the AVC provider of:
(a) the “ex-spouse’s” decision in respect of investment routes, enclosing a copy of the “ex-spouse’s” option form and any other relevant forms required by the AVC provider;
(b) the date immediately prior to the date the Court Order takes effect in order that only contributions in respect of the period up to that date are included in the valuation of the ‘pot’ for pension sharing purposes;
(c) the date at which the AVC ‘pot’ is to be valued. We recommend for consistency that this is the first day of the “implementation period” (i.e. the day the Court Order takes effect or, if later, the date all relevant documents and up-front charges are received) as referred to in paragraph 7.
(d) the deadline date by which the “Pension Sharing Order” must be implemented; and
(e) the earlier date by which the police authority needs to be informed of the split and the valuation amounts i.e. the amount debited from the member’s AVC ‘pot’ and the amount credited to the “ex-spouse’s” AVC ‘pot’.
The Police Pension Scheme AVC provider will apply the “Pension Sharing Order” and act in accordance with the “ex-spouse’s” investment option request. The AVC provider will then inform the police authority that the “Pension Sharing Order” has been applied and confirm the amount debited from the member’s AVC ‘pot’ and the amount credited to the “ex-spouse’s” AVC ‘pot’.
The police authority will need to write to both the member and the “ex-spouse” within 21 “days” of the AVC provider implementing the “Pension Sharing Order”. The letter should inform them that the “Pension Sharing Order” has been implemented and should confirm the amount of the debit / credit etc.
Annual Benefit Statements issued by the Police Pension Scheme AVC provider will, of course, need to reflect the debit taken from the member’s AVC ‘pot’. An Annual Benefit Statement ought to be provided to the pension credit member to keep him / her informed of the value of his / her ‘pot’.
Police authorities should inform the Police Pension Scheme AVC provider that they intend to recover any fines levied by the “Regulatory Authority” or the Courts against the police authority or the pension manager as a result of:
- a failure to provide information in a timely manner to the police authority in order to allow the authority to meet relevant deadlines in the pension sharing process, or
- a failure of the company to implement a “Pension Sharing Order” copied to them by the police authority.
- Police authorities should also determine what, if any, charges the Police Pension Scheme AVC provider would wish to recover in respect of the pension sharing process so that these can be built into the authority’s schedule of charges.
What if the member is in receipt of an annuity?
34. A similar process as outlined in the above section will need to be followed. However, there are a number of issues. It is to be hoped that, as annuities are relatively small compared to the level of the police pension, the Court will not order the split of an annuity in payment.
Police Pensions and Retirement Policy Section