Pension Sharing, up-front charges and deadlines

I was recently asked a question concerning an occupational pension scheme which requires any pension sharing charges to be paid ‘up front’, before the scheme will begin implementing a Pension Sharing Order (PSO).

In this case, when the PSO was received the charges had not been paid, so the scheme issued a ‘notice of postponement’ to the parties to the divorce. Unfortunately, these notices were issued after the 21 day deadline (see below), although the fees due were then paid and the PSO was implemented.

The query was whether any issues would arise as a result of the 21 day deadline being missed.

To consider this query, we need to start with Regulation 7 of The Pensions on Divorce etc (Provision of Information) Regulations 2000 [SI 2000 / 1048]. This requires that, when a pension scheme receives a PSO, it must issue a response to the divorcing parties and, if the scheme is not going to implement the PSO, these notices must be issued within 21 days of receipt of the PSO.

Now, provided that the scheme had previously complied with Regulation 7 (2) of The Pensions on Divorce etc (Charging) Regulations 2000 [SI 2000 / 1049] (which requires that, where the scheme is intending to require any pension sharing charges to be paid up-front, it must notify the parties of this no later than in the response to the ‘pre-order notification’), the response to the PSO may be a ‘notice of postponement of the implementation period’ as provided for under Regulation 7 (1) of SI 2000 / 1049:

7 Charges in respect of pension sharing activity — postponement of implementation period

(1) The circumstances when the start of the implementation period may be postponed are when a person responsible for a pension arrangement—

(a) issues a notice to the member and the person entitled to the pension credit no later than 21 days after the day on which the person responsible for the pension arrangement receives the pension sharing order or provision; and

(b) in that notice, requires the charges specified in regulation 3, 5 or 6 [of SI 2000 / 1049] to be paid before the implementation of the pension sharing order or provision is commenced.

For the case in question, the notice of postponement of the implementation period was not issued within this 21 day period, so there are two unfortunate consequences that arise.

Firstly, the scheme has breached the requirement in Regulation 7 of SI 2000 / 1048:

7 Provision of information after receiving a pension sharing order or provision

(1) A person responsible for a pension arrangement who is in receipt of a pension sharing order or provision relating to that arrangement shall provide in writing to the transferor and transferee, … -

(a) a notice in accordance with the provisions of regulation 7(1) of the Charging Regulations (charges in respect of pension sharing activity - postponement of implementation period);

…

(2) The information specified in paragraph (1) shall be furnished in accordance with that paragraph within 21 days beginning with -

(a) in the case of sub-paragraph (a) … of that paragraph, the day on which the person responsible for the pension arrangement receives the pension sharing order or provision;

Where a scheme fails to comply with Regulation 7 here, Regulation 9 of SI 2000 / 1048 applies:

9 Penalties

Where any trustee or manager of an occupational pension scheme fails, without reasonable excuse, to comply with any requirement imposed under regulation 6, 7 or 8 [of SI 2000 / 10848], the Regulatory Authority may by notice in writing require that trustee or manager to pay within 28 days from the date of its imposition, a penalty which shall not exceed -

(a) ￡200 in the case of an individual, and

(b) ￡1,000 in any other case.

As such, the scheme would have to report the breach to the Pensions Regulator (“the Regulatory Authority") who may then impose a penalty against the scheme.

Secondly, for the start of the implementation period to be postponed due to outstanding charges, the notice of postponement must be issued within 21 the day deadline. As the notice of postponement was not issued within this period, the start of the implementation period cannot be postponed, so the implementation period actually began as usual.

The scheme will, therefore, need to check that the valuation date used did still fall within this (revised) implementation period and that the PSO itself was actually implemented within this (revised) implementation period.

If the PSO was not implemented within the (revised) implementation period, the scheme will need to consider whether it must increase the amount of the pension credit as required under Regulation 18 of The Pension Sharing (Implementation and Discharge of Liability) Regulations 2000 [SI 2000 / 1053].

The scheme would also be required to report the late implementation to the Pensions Regulator as required under Regulation 2 of SI 2000 / 1053:

2 Time period for notification to the Regulatory Authority of failure by the trustees or managers of an occupational pension scheme to discharge their liability in respect of a pension credit

The period prescribed for the purposes of section 33(2)(a) of the 1999 Act [the Welfare Reform and Pensions Act 1999] (period within which notice must be given of non-discharge of pension credit liability) is the period of 21 days beginning with the day immediately following the end of the implementation period.

The Pensions Regulator may then impose another penalty on the scheme under Regulation 5 of SI 2000 / 1053:

5 Civil penalties

For the purpose of section 33(2)(b) or (3) of the 1999 Act, the maximum amount of the penalty which may be imposed by the Regulatory Authority under section 10(2)(b) of the 1995 Act is-

(a) ￡1,000 in the case of an individual, and

(b) ￡10,000 in any other case.

Failure to notify the Pensions Regulator of the late implementation within 21 days of the end of the implementation period also carries a further potential penalty under Section 33 (3) of the Welfare Reform and Pensions Act 1999.

As can be seen from the above, failing to issue the notice of postponement within the 21 day period carries an ‘automatic’ penalty and also raises the possibility that other penalties and even that re-working of the case may be required.

Schemes that do require pension sharing charges to be paid up-front may wish to review their processes to ensure that, where a notice of postponement is to be issued, it is always issued within the 21 day deadline.

Aries Insight?provides comprehensive and detailed guidance on the application of the pension sharing provisions, as well as insight into the meaning and impact of UK pensions regulation and clear guidance on the practical implications for pension providers, trustees, administrators and consultants.? If you are not already an Aries member and would like to find out more about what Aries Insight can offer you, then please drop me a mail at [email protected] or give me a call on 01536 763352.

Please note that?we are not lawyers or financial advisers.?The information above sets out our best understanding of the legislation and how it applies, but should not be taken as constituting legal or financial advice.