Pension Adjustment Orders
- How do I obtain information on my spouse’s pension benefits
- How is the non-member person’s share of the retirement benefits calculated
- How is the non-member person’s share of the retirement benefits paid
- The establishment of Independent benefits
- What happens to the non-member person’s share of the retirement benefits if he/she dies
- What happens to the non-member person’s share of the retirement benefits if the member spouse dies
- What happens to death in service benefits (contingent benefits) payable under the pension scheme
- What if the non-member spouse remarries
- Who pays for the costs incurred by the trustees
- How are benefits taxed
If Court proceedings have started for any of the orders specified in the legislation (The Family Law Act, 1995 and the Family Law (Divorce) Act, 1996 & The Civil Partnership and Certain Rights and Obligations of Cohabitants Act), each spouse is required to give particulars of his/her property and income to the other spouse (or to a person representing dependent children). Property and income includes rights acquired under a pension scheme.
The Court can direct pension scheme trustees to provide specific information in relation to an individual’s pension benefits. The trustees must provide the information within the period specified by the Court. With the consent of the member spouse, the trustees should, if possible, provide the information voluntarily to avoid putting the parties to the expense of obtaining a Court order.
The information which must be provided by the trustees is as follows:
- General Name of scheme / Policy number.
- Name of member.
- Date on which member first qualified for retirement benefits.
- Current pensionable salary or salary at date of leaving service
- Details of additional benefits arising from payment of any AVCs.
- Details of additional benefits arising from a transfer of accrued rights from another scheme. Contact name and address for further enquiries.
Where the Court decides to make a pension adjustment order in relation to retirement benefits, part of the member spouse’s benefits is designated for payment to the non-member (or to a person representing a dependent child). This part is called the designated benefit.
Role of Court The Court will rule on the two key factors;
- The Relevant Period (the period over which retirement benefits were earned which is to be taken into account).
- The Relevant Percentage (the proportion of the retirement benefits earned during the Relevant Period which is to be allocated to the person specified in the order).
The Relevant Period
may be the period of the marriage but it need not necessarily be so. It must, however, end no later than the date of the granting of the decree of judicial separation or divorce (i.e. the Court may not specify a period which ends after that date). This means future benefits cannot be shared. Details of the relevant period and the relevant percentage will be contained in the order which is served on the trustees of the pension scheme.
Role of Trustees
The trustees will then calculate the designated benefit following the procedure set out in legislation. The calculation depends on whether the retirement benefits are determined on a defined benefit or a defined contribution basis.
If retirement benefits are determined on a defined benefit basis, the retirement pension and other benefits payable to the member and his/her dependants are calculated in accordance with the rules of the scheme. The designated retirement benefit is the proportion of the member’s retirement benefit set out in the Court order. (If the member retires early receiving a reduced pension the proportion in the Court order applies to the reduced pension at the time of payment).
Payment of the designated benefit will generally commence when the retirement benefit starts to be paid to the member spouse. Alternatively, if the pension adjustment order is made in favour of the non-member spouse (rather than for the benefit of a dependent child) he/she may elect to establish an independent benefit in lieu of retaining the designated benefit in its original form. The options are;
- Establishment of independent benefit
- How can the non-member spouse establish an independent benefit?
- May a transfer amount be made without consent?
- Payment of designated benefit
If the pension adjustment order is made in favour of the non-member spouse then, subject to the criteria set out below, he/she may request that an independent benefit be established instead of retaining the designated benefit. In this way, the benefit payable to the non-member spouse is no longer affected by decisions taken by the member spouse. This option is only available if the member spouse has not commenced receiving retirement benefits. No such option is available if the order is made for the benefit of a dependent child.
To facilitate the establishment of independent benefits, a ‘transfer amount’ is calculated which represents the value of the designated benefit which might otherwise be payable. The transfer amount is then applied (in either the same scheme or another pension arrangement) to provide independent benefits for the non-member spouse. The independent benefits must be of the same value as the transfer amount.
The establishment of an Independent Benefit can be done in a number of ways
Independent benefit in the same Scheme
With the agreement of the trustees of the pension scheme of which the member spouse is a member, an independent benefit may be established in that scheme. In order to comply with the requirements of Revenue, the alternative benefit must be a pension payable for life and commencing not earlier than the earliest date on which the member spouse’s retirement benefits could have commenced. When the pension is due to commence, part of it may be exchanged for cash, within Revenue limitations. Ancillary benefits (such as dependants’ pensions) may also be incorporated. The trustees of the scheme must ensure that the actuarial value of the alternative benefits is equivalent to the actuarial value of the transfer amount and must inform the non-member spouse of the nature and amount of the alternative benefit as soon as practical after the transfer has taken place.
Independent benefit in another occupational pension scheme
If the non-member spouse is a member of a company pension scheme then, subject to the agreement of the trustees of that scheme, he/she may request that the transfer amount be paid to it from the scheme of which the member spouse is a member. This option is only available if the designated benefit arises due to the member spouse’s participation in a company pension scheme.
The independent benefit established in the receiving scheme must comply with Revenue requirements. The trustees of the receiving scheme must ensure that the alternative benefits are of the same actuarial value as the transfer amount and must inform the non-member spouse of the nature and amount of the alternative benefits as soon as practical after the transfer has taken place.
Independent benefit in approved insurance policy or Personal Retirement Savings Account (PRSA)
The non-member spouse may request the trustees of the pension scheme of which the member spouse is a member to pay the transfer amount to an approved insurance policy or a PRSA and the trustees must comply with that request. Separate insurance policies have been approved by Revenue which are authorised to receive transfers from company pension schemes and pension policies for the self-employed.
The trustees of the scheme from which the designated benefit arises must pay the transfer amount directly to the insurance company in question. The nature of the independent benefit must comply with Revenue requirements.
- Death prior to the commencement of designated benefit
- Death following commencement of designated benefit
- Order made in favour of a dependent child.
Death prior to the commencement of designated benefit
If a pension adjustment order has been made in favour of the non-member spouse and he/she dies prior to the commencement of the designated benefit (and prior to any decision to transfer the designated benefit to another scheme or policy) an amount must be paid to his/her estate within 3 months of the death.
It is important that the non-member spouse maintains contact with the trustees of the scheme during his/her lifetime (i.e. by notifying of changes in address etc.) and that arrangements are made for the trustees to be notified in the event of his/her death.
The amount paid on death is calculated as the transfer amount that would otherwise have been available to the non-member spouse, for the purposes of establishing an independent benefit, immediately prior to his/her death.
If, prior to the individual’s death, the non-member spouse had chosen to, or the trustees had decided to, apply a transfer amount in lieu of receiving the designated benefit, death benefits will be paid in accordance with the benefit terms granted in the receiving scheme or insurance policy.
Death following commencement of designated benefit
If a pension adjustment order has been made in favour of the non-member spouse and he/she dies before the member spouse following the commencement of the designated benefit, an amount must be paid to his/her estate within 3 months of death.
The amount is calculated as the actuarial value of the designated benefit which would otherwise have been payable for as long as both the non-member spouse and the member spouse were alive. In other words, the value of the designated benefit which may otherwise have been payable following the death of the member spouse is not taken into account.
Orders made in favour of a dependent child
Where a pension adjustment order has been made in favour of a dependent child and he/she dies either before or after the commencement.
Death prior to the commencement of designated benefit If a pension adjustment order has been made and the member spouse dies prior to the commencement of the designated benefit (and prior to any decision to transfer the designated benefit to another scheme or policy) an amount is paid to the person in whose favour the order is made.
The amount is calculated as the actuarial value of the designated benefit that would otherwise have been payable. If the pension adjustment order is made in favour of the non-member spouse, such amount will be equivalent to the transfer amount which would otherwise have been available immediately prior to the death of the member spouse for the purposes of establishing an independent benefit.
Contingent benefits refer to lump sums and/or dependants’ pensions which are payable under the rules of a pension scheme following the death of the member during employment (or self-employment). If the non-member spouse (or a person representing a dependent child) wishes to seek a pension adjustment order in relation to contingent benefits, this must be made separately from any application in relation to retirement benefits.
The procedure of applying for a pension adjustment order is outlined in Section 4. Most importantly, in the context of an order in relation to contingent benefits, the application must be made at the time of the granting of the decree or within 12 months after the granting of the decree of judicial separation or divorce.
The Court will determine whether a pension adjustment order should be made and the provisions of the order. Specifically, the order will detail the person or persons in whose favour it is made (this may be the non-member spouse and/or a person representing the children) and the percentage of each element of the contingent benefits that is to be payable to such person(s).
On the death of the member spouse during employment (or self-employment), the percentage of contingent benefits as specified in the order must be paid to the appropriate person(s). The contingent benefits in question are those applying based on the rules of the scheme at the date of the judicial separation or divorce (i.e. subsequent improvements or reductions in contingent benefits are ignored) and, if relevant, the member spouse’s salary (or pensionable salary) at date of death.
The Court will not make a pension adjustment order if the spouse who applies for it has remarried.
If a pension adjustment order in relation to retirement benefits is made, this will be unaffected by a subsequent change in marital status of either spouse.
On the other hand, a pension adjustment order in relation to contingent benefits ceases to have effect in relation to the non-member spouse in the event of his/her remarriage. In this eventuality the order may, however, continue to apply to others (see duration of a pension adjustment order).
The legislation provides that costs incurred by the trustees in complying with a pension adjustment order, or a direction of the Court, shall be borne by the member spouse and the other person concerned, in such proportions as the Court may determine. Similarly, costs incurred by the trustees where they choose to make representations to the Court, following notice of an application for an order, shall be borne by the parties to the proceedings, as the Court may determine.
If the Court does not determine the basis of apportionment of such costs, these shall be borne equally between the member spouse and the other person concerned.
If a person fails to reimburse the trustees for such costs, the trustees may, on application to the Court, seek an order that the costs may be recovered by deduction from any benefits due to that person under the scheme or pursuant to the pension adjustment order, as appropriate.
Pension payments made under a pension adjustment order are treated as income and, subject to any tax-free allowance, are chargeable to income tax under the PAYE system in the same way as the member’s pension.
Separated spouses will be assessed to income tax as single persons unless they elect for joint assessment. Where a divorce has been obtained, each spouse will automatically be assessed to income tax as a single person unless he/she remarries.
Under current Revenue practice, lump sum payments on retirement, which are part of either a designated benefit or an independent benefit established following transfer, are paid free of tax up to certain Revenue limits.
Where part, or all, of the designated benefit consists of a refund of part of the contributions made by the member spouse, such refunds are currently chargeable to tax at the rate of 25%.
Payments made under a pension adjustment order in relation to retirement benefits following the death of either the non-member spouse or the member spouse are not subject to income tax. They may, however, attract a liability for capital acquisitions tax. Similar criteria apply to payments made under an order in relation to contingent benefits.
Where a divorce has been obtained, any payment on the death of the member spouse to the non-member spouse in relation to a pension adjustment order is exempt from capital acquisitions tax.