In common with other pension schemes, charges are made for the administration of Pension Sharing Orders and agreements. The scheme's administrator will invoice either the member or the member's ex-spouse for the charges, depending on who the Pension Sharing Order specifies should be charged.
Where the responsible party fails to pay the invoice by the end of a specified period (the "payment period"), alternative methods are available to the scheme to recover any outstanding charges. These methods involve a member or ex-spouse's benefits being reduced to recover the charges.
For instances where a pensioner member fails to pay the outstanding charge a temporary deduction may be made to the pension in payment. If a member who fails to pay the outstanding charges is transferring out of the TPS then we understand the fee amount can be deducted from the member's cash equivalent transfer value. The deduction to be applied in these situations will be determined by the scheme administrator and is outside the scope of this guidance note.
This guidance note covers the other alternative methods available to the scheme, and sets out the deduction to be applied to a member's accrued rights or to the ex-spouse's pension credit. The deduction is increased in line with the Pensions (Increase) Act up until the member's or ex-spouse's retirement and applied at this time.
The deduction will not be applied to the benefits payable to a future surviving spouse, civil partner or children on the member's death.
For members or ex-spouses with benefits in both the final salary scheme and the career average scheme, a deduction may be made to their benefits in one scheme or both schemes to recover the outstanding charge, depending upon any instructions received and what is specified in the Pension Sharing Order.
The guidance for calculating the appropriate deduction to a member's accrued rights or to an ex-spouse's pension credit is set out in the following sections. The formula to use depends on whether the deduction is being applied to NPA 60 final salary benefits or if it is being applied to NPA 65 final salary or career average benefits. The same formulae and factors apply to both members and pension credit members (i.e. the ex-spouse).
The size of the deduction (D) that should be applied to the member's accrued pension or the ex-spouse's pension credit should be calculated as:
D = C / (FxP + 3 x FxLS)
where:
D is the deduction to be applied to the member's/ex-spouse's pension
x is the member's/ex-spouse's age (last birthday) at the end of the payment period
C are the charges payable, including any interest to be applied
FxP is the factor for reduction to pension for a member/ex-spouse aged x
FxLS is the factor for reduction to automatic lump sum for a member/ex-spouse aged x
The deduction to be applied to the member's or ex-spouse's lump sum benefit (DLS) is calculated as:
DLS = 3 x D
The factors FxP and FxLS should be selected with reference to a member's age and gender.
The relevant factor tables set out in the Factor Tables are as follows:
- Table DF60M: Factors for calculating divorce fee deduction, male, NPA 60
- Table DF60F: Factors for calculating divorce fee deduction, female, NPA 60
The scheme administrator should store the reduction calculated above and its implementation date on the member's or ex-partner's record. Where a member has multiple such reductions, these should be recorded separately.
The size of the deduction (D) that should be applied to NPA 65 final salary benefits or to career average benefits should be calculated as:
D = C / FxP
where:
D is the deduction to be applied to the member's/ex-spouse's pension
x is the member's/ex-spouse's age (last birthday) at the end of the payment period
C are the charges payable, including any interest to be applied
FxP is the factor for reduction to pension for a member/ex-spouse aged x
The factor FxP should be selected according to the age, gender and normal pension age of the member/ex-spouse. Normal pension age is defined as a member's or ex-spouse's State Pension age (or 65, if that is higher) in the career average section. For the purpose of this note, a member's or ex-spouse's expected NPA in the career average section is the same as their State Pension age as set out in HM Treasury Directions.
The relevant factor tables set out in the Factor Tables are as follows:
- Table DF65M: Factors for calculating divorce fee deduction, male, NPA 65
- Table DF65F: Factors for calculating divorce fee deduction, female, NPA 65
- Table DF66M: Factors for calculating divorce fee deduction, male, NPA 66
- Table DF66F: Factors for calculating divorce fee deduction, female, NPA 66
- Table DF67M: Factors for calculating divorce fee deduction, male, NPA 67
- Table DF67F: Factors for calculating divorce fee deduction, female, NPA 67
- Table DF68M: Factors for calculating divorce fee deduction, male, NPA 68
- Table DF68F: Factors for calculating divorce fee deduction, female, NPA 68
The scheme administrator should store the deduction calculated above and its implementation date on the member's or ex-spouse's record. Where a member has multiple such deductions, these should be recorded separately.
Where a member has mixed service, the deduction should be applied to the NPA 65 pension. If the deduction exceeds the value of the pension in the NPA 65 section of the scheme, the NPA 60 benefits should be reduced to cover the excess.
Where a member has a non-integer NPA then factors should be interpolated. For example, for a member with a normal pension age of 67 years and 2 months the factor would be:
FxP(NPA 67 years 2 months) = FxP(NPA67) + {(2/12) x [FxP(NPA68) - FxP(NPA67)]}
