Pensions are often valuable assets within a marriage, so it is important to understand and deal with the different types of pensions with caution.
Some of the more valuable but challenging pensions to deal with are those provided by the military, whether you are in the Army, Navy or Royal Air Force. It is normally necessary to instruct an actuary to report on how best to deal with these types of pensions, as they often contain a number of hidden benefits.
Where to begin
If you are getting divorced, you should ideally start requesting the Cash Equivalent Transfer Values (CETVs) of all the pensions involved as soon as possible as they can take some time to obtain. This represents the value of the pension rights at the time it was obtained and CETVs will usually show the date that they were calculated on.
When it comes to military pensions there, is useful information on how to request your CETV provided by Veterans UK, as well detailed information from the Government at https://www.gov.uk/guidance/pensions-and-compensation-for-veterans#scheme
Pensions sharing is a common way in which pensions are dealt with upon divorce or dissolution. There are advantages to obtaining a pension sharing order, as opposed to a pension attachment order, which used to be the norm. The differences and pitfalls of attachment orders are set out on our Pensions on Divorce page.
If it is agreed that a Military pension should be shared, it is strongly advised that a pension actuary is instructed to report on how to achieve an equality of income, value or capital at the point the pensions become payable. An actuary will be able to report and advise you on the pension benefits that are attached to each scheme, and set out in the report how best to deal with them either through a pension share, or offsetting. They will also be able to advise on specific queries, such as how best to offset pensions against other matrimonial assets or the value of pensions where pre-matrimonial accruals are being ringfenced.
As there are a number of different schemes which come under the umbrella of Military pensions, it is important to understand some basic facts about the different schemes as they have their own rules and benefits:
If there is an AFPS75 pension, it is important to obtain detailed advice about its specific benefits. With this pension, a member of the military with 34 years of continuous service can receive their pension at 55. On top of this, a lump sum equal to three times the individual’s salary is payable tax-free upon draw down. Members who do not have the defined continuous service under this scheme will of course receive a smaller pension at retirement. Members who joined this scheme between 1975 and 5 April 2005 were transferred onto the new AFPS05 scheme in 2005.
AFPS75 pensions also can have the additional benefit of an Immediate Pension (IP) which provided an entitlement to a pension as early as 37 for an Officer or 40 for Other Ranks.
This newer scheme adopted the benefits of the AFPS75 scheme but provided new amounts for members with less than 34 or even 18 years of service and for those who leave between the ages of 40 and 55. Members of this plan who were not within ten years of their relevant pension age as of 1 April 2021 were automatically transferred onto AFPS15.
This scheme increased the previous retirement age of 55 to 60 and has removed the tax-free lump sum offered by the original AFPS75 plan, among other changes.
There are also other schemes which are specifically for Reserve Forces.
The Military allow for pension shares to occur internally any they will set up a new pension for the receiving party.
It is important, when military pensions are involved, to seek a report from a pension actuary. Often the CETV as provided by the military is not a true reflection of the real value of the scheme as certain benefits will not factored in or valued.
One such benefit is the Early Departure Payment (EDP) which may be available to certain Military role holders. Members who have served 18-20 years plus and depending on which schemes they are in, could receive a EDP lump sum and monthly income from the date they leave the forces until they are of retirement age. For members of the older schemes like the AFPS05, this is based upon a percentage of their pensions as it has accrued. Making a pension share in these circumstances can reduce the immediate benefit and so this impact is something that the parties should be aware of with considerations for this this benefit made into their agreements.
The costs involved
At the time of writing, the Military do not charge for a request for a CETV for the purposes of divorce or dissolution and you are allowed a free valuation every 12 months. You may incur a charge if you are already retired or you are within 12 months of your retirement age as defined by your scheme.
Pension Actuary report
The cost of any report will depend on the questions asked of the actuary. You may wish to ask for the report to cover various values to use in offsetting the pension asset against other matrimonial assets, ringfencing pre-matrimonial accruals or alternatively it may be useful to consider the difference between the pension share to equalise pension incomes or capital when the relevant pensionable ages are met.
Once you have reached an agreement in respect of pensions, it will be necessary to send a Pension Sharing Annex to the Court for sealing. This sets out the percentage shares and information on the relevant schemes, as well as the parties. Once you have received an Order from the Court with a Pension Sharing Annex attached, so long as Decree Absolute has been pronounced, you can send the information to the Military pension scheme for them to implement. The scheme then charge for the creation of a new pension record for the receiving party. How this charge is dealt with is set out in the Annex. It can either be shared or paid by the Transferor.
Military pension schemes are varied and complex and so they must be treated with caution. It is important to seek the appropriate advice from a lawyer who understands the nuances of Military pensions so that key issues can be identified when instructing a pension actuary.
Any information we have provided in respect of Military pensions should be explored with your financial advisor and if you are considering sharing Military pensions, an actuary should be instructed to report on how best to deal with the asset.
We have years of experience dealing with separating parties holding military pensions.
Our expert team of family solicitors can also advise on a range of issues, including domestic abuse, family disputes, divorce, dissolution, and child arrangement matters.
To discuss any of the issues raised in this note, please contact us today for a free no obligation telephone discussion on 01494 451355 (High Wycombe office), 01628 958445 (Marlow Office) or 020 3443 9576 (City of London office). Alternatively, you can email us at email@example.com.