Pension sharing in a defined benefit scheme

The procedure here is much more complex and is best explained by way of an example.


If we have a case where the husband (who I will call Mr H) is an active contributing member of a Final Salary scheme
His current annual rate of pay is £30,000 at 1 January 2021.
His normal retirement age is 60 and Mr H is age 50 now.
The accrual rate for pension benefits is 1/60 x final pay for each year of service.
His service in the scheme at 1 January 2021 = 20 years.
Hence Mr H’s accrued pension at 1 January 2021 = 1/60 x 20 x 30,000 = £10,000 per annum (although this is not payable in full until he reaches the normal retirement age of 60).

A 40% pension share is then applied to his pension on 1 January 2021.
The deduction applied to Mr H’s pension at 1 January 2021, called his pension debit, is calculated as £10,000 x 40% = £4,000 at 1 January 2021.

If we now move forwards in time by 10 years to 1 January 2031, at Mr H’s Normal Retirement Date (age 60), assuming that he was still a contributing member of the scheme at that time, his position a that time might be as follows:

His final annual rate of pay is £60,000 at 1 January 2031.
His service in scheme at 1 January 2031 is now 30 years.
The pension accrual rate is unchanged.
Hence Mr H’s accrued pension at age 60 before applying the debit is 1/60 x 30 x 60,000 = £30,000 per annum.

The pension debit at 1 January 2021 was £4,000 per annum. This is revalued according to the scheme’s rules to Mr H’s retirement at 1 January 2031 to £6,000 per annum.

Hence Mr H’s pension from his age 60 after applying the debit is £30,000 less £6,000 = £24,000 per annum.

The effect on a defined benefit pension with different accrual rules, such as one with CARE accrual, is much the same although the accrual of future pension rights between the pension share and the member’s retirement will of course be different.