Schemes must start preparing for regulation changes on pension sharing long before they come into ef...
Schemes must start preparing for regulation changes on pension sharing long before they come into effect on 1 December 2000, according to consultants Watson Wyatt.
As of 10 May 2000 any new scheme seeking approval must now incorporate the new pension sharing provisions into its rules. All occupational schemes, personal pension schemes, retirement annuity contracts and section 32 buy out contracts will be affected by the new provisions. Stakeholder schemes are almost certain to come under this regulatory framework next year, the group says.
Pension sharing stipulates a percentage of the member's cash equivalent to go to the spouse in the event of divorce. The member's pension rights will be reduced in value by the percentage specified in order to credit the ex-spouse with a 'pension credit' which will broadly reflect ordinary preserved benefits.
Trustees are required to offer to transfer pension credits to another suitable pension arrangement and will need to decide whether they will be prepared to offer the ex-spouse a benefit within the scheme. They must also determine what charges they will levy for dealing with pension sharing cases.
The aim of pension sharing is to offer divorcing couples a clean break by allowing the pension rights to be shared at the time of the divorce. All accrued pension rights up to the time of divorce may be shared, including SERPS and any contracted-out pension.
At present the most common method for settlement is offsetting pension rights against financial assets or earmarking part or all of a member's benefit for payment direct to the ex-spouse. Offsetting often suffers from the lack of an asset of comparable financial size.
Earmarking is unpopular as no benefit is paid to the ex-spouse until the member dies or retires. The pay-out also ceases on the re-marriage of the ex-spouse.
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