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Public Sector Pensions

Uniformed Public Sector pensions and pension sharing – what should you look out for?

Uniformed public sector pensions – the Police Pension Scheme, Firefighters’ Pension Scheme, and Armed Forces Pension Scheme – can be tricky to consider when pension sharing is a likely method of settlement to be used. The biggest issue to look out for is the retirement age that is to be used in any calculations, since the party who holds the Uniformed Services pension may be able to retire at an earlier age than their ex-spouse would be able to retire at from any credit pension awarded to them, especially in the older legacy schemes (the Police Pension Scheme 1987, Firefighters’ Pension Scheme 1992, and Armed Forces Pension Scheme 1975).

Uniformed Services pensions may allow the member to retire from active service on an unreduced pension, as early as attaining 30 years’ service (potentially in their late 40’s) on Police 1987 cases, from age 50 in the Firefighters’ 1992 Scheme and even earlier, potentially from as young as age 37, in the Armed Forces Pension Scheme 1975. The ability to benefit from these favourable terms usually requires the member to retire from active service (that is as a current employee) of the uniformed service in question and further stipulates that they have completed a minimum period of service. In these schemes, the credit pension is not usually payable to the ex-spouse until their age 60 or 65 without reduction and so a simplistic approach such as equalising the Cash Equivalent Values (CEVs) of the parties’ pensions can lead to unexpected and arguably unfair outcomes.

The “minimum period of service” point above is very important to remember as this impacts on the assumed date of retirement when the CEV is calculated which in turn means that the CEV of the pension can change quite dramatically when a service milestone date is reached. For example, when a police officer in the 1987 Scheme reaches 25 years of qualifying service, their 1987 pension will become payable from age 50 (or immediately if they are above this age) which can cause the CEV of their pension to increase quite significantly at this point. This happens because before reaching 25 years of service, their pension is only payable without reduction from age 60 and so on reaching 25 years of service, there are now potentially another ten years of possible pension payments to be included in the valuation calculation. This again can result in unexpected outcomes, particularly if there is a lengthy delay between the calculation of any necessary share and the implementation of that pension share. If the member is expected to remain in service until their retirement, it could also be argued that their pension should be given a higher value to account for the expected reduction in normal pension age on reaching their service milestone date, though there may always be arguments as to whether they will certainly remain in service long enough to reach the milestone date and consequently gain from the more favourable pension benefit terms.

In addition to differences in the parties’ future pension incomes due to their differing retirement ages, there can also be the issue of Early Departure Payments (EDPs) in the Armed Forces Pension Scheme if the husband or wife in a divorce settlement is a member of the Armed Forces Pension Scheme 2005 or 2015. EDPs comprise of a tax-free lump sum and regular income payments made from the date at which the member leaves service in the Armed Forces provided that this is after their 40th birthday but before their assumed Normal Pension Age and they have completed at least 18 years of service (to qualify for Armed Forces 2005 EDPs) or at least 20 years of service (to qualify for Armed Forces 2015 EDPs). The regular income payments would be paid until age 65 (for Armed Forces 2005 EDPs) or until State Pension Age (for Armed Forces 2015 EDPs). One key point here however is that EDPs are not considered pension rights by the Scheme. Consequently, although these may be a source of income that an ex-spouse may “lose the chance of acquiring” post-divorce, they are not affected by any pension sharing order made on the Armed Forces 2005 or Armed Forces 2015 Schemes or included in any CEV calculated by these schemes. This means that it might be necessary to consider periodic payments to the ex-spouse, or possibly to make an adjustment to the required pension share in order to allow for the difference in future income post-divorce, though the extent to which this might be reasonable could be influenced by post-divorce employment income and other income expected to be received by both parties.

A number of other issues could be significant too, for example if a member has retired in ill health and has a non-shareable injury pension included in their pension rights or if a member of the Armed Forces has recently become a commissioned officer (after originally joining the Armed Forces at a non-commissioned rank, referred to as an “other ranks” member). Due to these potential issues, it is usually advisable on cases including a uniform public sector pension to obtain a report from an appropriately qualified pensions on divorce expert.

Joseph Lennard

Actuaries for Lawyers

About the writer

Disclaimer – The views expressed here are the views of the writer only and do not necessarily represent the view of Actuaries for Lawyers. Whilst every effort has been made to ensure the accuracy of the information in this post, it is important to always check the benefit rules with the schemes before making any financial decisions based upon these. Actuaries for Lawyers cannot be held responsible for any losses incurred as a result of relying upon information contained in the blog section of our website as these do not constitute advice or act as a substitute for providing individual advice in relation to the specifics of a particular case.