As a police officer, you are no doubt aware that your pension scheme is generally regarded as one of the best in the public sector. While this gives you peace of mind in respect of your future retirement, it can also be the cause of serious trepidation if you are going through a dissolution or divorce.
The treatment of pensions on divorce or dissolution is complex for all types of pensions. However, like many other schemes for those serving our country, such as the armed forces and firefighters, the specific features of a police pension mean it is crucial that you receive advice from a specialist family lawyer with expertise in this tricky area. This will ensure that you take the necessary steps to maximise your position in terms of income and any lump sum(s) available to you on retirement.
There are several police pension schemes, the most recent being the 2015 CARE scheme (career average revalued earnings scheme). Older schemes, such as the 1987 scheme, were final salary schemes. A police officer who has served for some years can have benefits under one, two or more schemes, and this needs to be investigated if you are trying to sort out your finances as part of divorce/dissolution. This is because the income and benefits, and when you can access them, differs significantly between the schemes.
The police pension schemes are occupational ‘defined benefit’ schemes. This is what differentiates them from most private sector pension schemes, which are ‘defined contribution’ or money purchase schemes. Put simply, a ‘defined benefit’ scheme guarantees that you will receive a certain income each year on your retirement, whereas the retirement income you might receive from a ‘defined contribution’ scheme depends on how much you have contributed to the scheme and how well the pension fund is invested.
The first step in relation to your pension (and any other assets, liabilities and income) is to provide full disclosure to your ex-spouse/civil partner of your financial situation. They should do the same too. Your lawyer will be able to help you complete a detailed document called a ‘Form E financial statement’ which sets out all of your financial information; this includes details of your pension.
Once the financial cards are on the table, you can start thinking about how the resources available to you should be divided to provide for your income and capital needs going forwards.
You will be able to request information regarding your police pension(s) from the scheme administrators. The main piece of information will be the capital value of the pension benefits. This is referred to as its cash equivalent (or ‘CE’).
Your scheme administrators can calculate this for you so you can complete your Form E. They are required to provide it to you free of charge (up to once a year). Given that they have three months from the date of request to provide it to you, it is best to ask for it as soon as possible.
The issue with many public sector schemes is that the CE figure is almost always misleading, as it does not represent the true value of the benefits that the pension will provide upon future retirement. The CE valuation is based on a set formula which presumes that you will immediately leave the police force and retire, which is clearly not usually the case. This means that the figure produced will vary hugely depending on the length of service, age, and terms of the schemes that you have joined at various points in your career.
For example, a CE obtained before you reach the minimum length of service to retire will be significantly undervalued. The CE does not include death in service benefits, discretionary benefits or future expectations.
The important take away here is that the CE figure should not be taken at face value: it cannot be relied upon as a true indication of the monetary value of the pension and cannot, therefore, be viewed and compared with other valuations which are in play, such as for housing. In any event, the CE can change significantly from the date when it is first obtained as part of the disclosure exercise, and the eventual date that a pension is shared following the making of a pension sharing order (see below) once the court has made a final financial order dealing with all the assets, liabilities and income.
In almost all cases, and certainly all where you have saved into one or more police pension schemes for several years, input from a pension on divorce expert (PODE) will be required in order to accurately value the benefits that your pension will provide, and to guide on the most advantageous way to divide your (and your ex-spouse/civil partner’s) pension benefits to provide for both your retirements.
Once expert input has been obtained from a PODE, you will have the necessary information available to incorporate pensions into your overall financial negotiations. Your pension(s) and those of your ex-spouse/civil partner should be considered together to ensure that both your retirement needs are met, insofar as that is possible.
If your ex-partner has a lower level of pension provision than you, your family lawyer will be able to advise you whether your police pension benefits should be split. The way this is done is via a pension sharing order. This is an order made by the court requiring a specific percentage of your pension pot to be debited from your pension and credited to a separate pension account in your ex-partner’s name.
The two most common approaches to dividing pension assets are to either:
Your and your ex-partner’s state pension provision will also be included when considering what is available in terms of income and capital lump sum(s), and how these can be split to create the desired outcome. It is often advisable to ask your PODE to forecast a range of scenarios based on different retirement ages so you can consider what works best for you.
While with most pension shares, your ex-spouse/civil partner would be able to opt to transfer their pension externally (ie outside of the police scheme) this is not usually permitted with police pension sharing. Any pension credit will need to be transferred internally to a separate pension in their own name. The PODE will be able to provide expert input to your ex-spouse/civil partner as to the benefits that the pension credit provides; they are often different and may not provide for benefits to be taken at the same age as you, the original pension member.
Added complexity arises if you as a police pension benefit member have already started taking pension benefits and a pension sharing order is made. In this scenario, there is potential for the pension administrators to ‘clawback’ from you a proportion of the income that is paid to you during the period between:
The ‘clawback repayment’ is required in respect of pension benefits that were technically overpaid to you during the period in which your ex was entitled to some of that income as the recipient of the pension sharing order. Your family law specialist will be able to advise you on how to mitigate this risk when drafting your overall financial order and will try to minimise the time spent on implementation.
The short answer to this question is, potentially. If you are contemplating marriage or civil partnership, then you could seek to agree a pre-marital/civil partnership agreement which specifically ringfences your pension should you divorce in the future.
Even after tying the knot, a post-marital/civil partnership agreement could be sought in similar terms.
Of course, either of these would require your partner’s consent and cooperation. While marital and civil partner agreements are not binding on the courts of England and Wales, they can be highly influential so long as they were entered into freely and with both parties fully understanding the effect of the agreement.
In addition, in certain cases it is reasonable to argue that pension funds built up before the marriage and/or after you and your partner separate should not have to be shared with them. However, such ringfencing arguments are not likely to carry weight if there is not enough in the financial pot to go around.
Whether you are thinking about getting married, are going through a breakup or are worried about your retirement plans if your relationship breaks down, your family law specialist will be able to advise you on the steps you can take to protect your retirement provision.