Pension Adjustment Orders
The provisions of the Family Law (Divorce) Acts and the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010 can have significant implications for pensions. The provisions of the Family Law (Divorce) Acts and the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010 can have significant implications for pensions.
Options for beneficiaries in respect of designated benefits
A beneficiary under a PAO (that is, a former spouse or former civil or cohabiting partner) has, in respect of their designated benefits from the retirement arrangement in question, the option of retaining the benefits in the member’s arrangement until the member retires or draws them down.
Where benefits have not commenced the PAO beneficiary has further options depending on the type of pension arrangement involved.
Occupational pension schemes
Personal Retirement Bonds (Buy-Out-Bonds)
Personal Retirement Savings Accounts (PRSA)
The PAO beneficiary may transfer the benefits to an occupational pension scheme (of which the beneficiary is a member) or to a PRSA.
Retirement Annuity Contracts (RAC) - Personal Pension Plans
The PAO beneficiary may transfer the benefits to a PRSA or to an RAC. In this scenario, the PAO beneficiary may opt to take a transfer value of the designated benefits to an RAC notwithstanding that he or she may not have a source of relevant earnings and, as Tax and Duty Manual Pensions Manual – Chapter 22 4 such, may not, strictly speaking have that option under Part 30 of the Taxes Consolidation Act 1997 (TCA).
The impact on the member
In the case of occupational pension schemes, the maximum benefit which a member may take from a scheme is exactly the same whether or not part of the benefit is the subject of a PAO. The existence of a PAO does not affect maximum contribution limits for either employers or employees. Any benefit which is the subject of a PAO is regarded as part of the member’s benefit for the purposes of calculating maximum benefits for the member. It follows that the maximum benefit payable to the member is the amount calculated using the normal rules, less any amount which is the subject of a PAO. This applies whether the PAO results in the benefits being retained in the member’s scheme or transferred to another scheme. This principle applies equally to pension and lump sum benefits.
If a transfer payment is made, the value at the date the member spouse or civil partner (that is, the PAO beneficiary) takes benefits is the amount which is treated as a retained benefit. If the exact value is not known, the original transfer payment should be revalued in line with Pensions Act revaluation requirements.
The impact on the beneficiary
In the case of occupational pension schemes, the benefit arising from a PAO is not regarded as a retained benefit for the purposes of calculating maximum benefits for the PAO beneficiary. Any pension is, however, liable to taxation in the hands of the recipient.
Approved Retirement Funds (ARFs) and Approved Minimum Retirement Fund (AMRFs)
A transfer from an Approved Retirement Fund (ARF) or Approved Minimum Retirement Fund (AMRF) into another ARF/AMRF in the name of a spouse or civil partner in exercise of rights under a PAO will not be regarded by Revenue as a distribution from the transferring ARF/AMRF. Similar treatment will also apply where a transfer occurs in exercise of rights under a Property Adjustment Order. In both scenarios the recipient spouse or civil partner may open an ARF/AMRF to facilitate the transfer notwithstanding that he or she may not, strictly speaking, have that option under Part 30 of the Taxes Consolidation Act 1997.