Divorce and The Armed Forces Pension Scheme

When you seek advice on the breakdown of your marriage or Civil Partnership, serious consideration will need to be given to your financial position and that of your spouse/partner. Your family lawyer may at some point seek for Cash Equivalent Value from all pensions which you and your spouse are a member of.  These documents are a value of the benefits if the member was to leave on the date, so effectively it is a snap shot in time.

The three main schemes and benefits which are likely to affect veterans or (ex)serving personnel and some reservists.

They are:

• Armed Forces Pension Scheme 1975 (for those who joined between 1^st Apr 1975 – 5^th Apr 2005)
• AFPS 2005 (6^th Apr 2005 – 31^st Mar 2015)
• AFPS 2015 (1^st April 2015 – current)

The three schemes are defined benefit schemes, being workplace pensions, arranged by the employer.  They are unfunded, meaning there is no pot of money behind the scheme, unlike private pensions.  Furthermore, they are non-contributory; the member doesn’t pay anything into the scheme.  There are fundamental differences between each scheme some of which are highlighted below, evidencing how the schemes have evolved over time.

In terms of terminology, your family lawyer may refer to the 75 and 05 schemes as legacy schemes.  In 2015 – schemes changed and everyone on either the 75 or 05 also became members of the 15 scheme.  Broadly speaking those who joined before 1st April 2015, will have 2 schemes; there are some protected members which meant that they could remain on the 75 or 05 scheme and your family lawyer will be able to advise on this point, if necessary.

From the above table, we can certainly agree that armed forces pension schemes are extremely complex and special consideration will need to be given. Here are some fundamental points to take from the above:

• If you or a member leaves service after 2 years – you/they will have a preserved pension which will be paid at the normal retirement age for the scheme (or earlier point with actuarial reduction, as described above).
• A resettlement grant will be paid if the member has the relevant years’ service, but has not reached the immediate pension point or early departure payments point.
• The Immediate Pension Point, is very significant (the point at which the member is paid their pension, yearly, for life as well as a lumpsum, this particularly affects the 75 scheme given the very early immediate pension point.
• The 05 and 15 schemes do have the benefit of the early departure payments which are not classed as pensions and therefore will not be included in any cash equivalent statements and therefore not impacted by a Pension Sharing Order, but they will be in receipt of payments, annually together with a lump sum.
• A Cash Equivalent Statement (CE) is only a snapshot in time, this can result in there being some issues with them becoming “out of date, for example if the CE figure provided is before a member has reached the immediate pension point, it will have been valued on the basis that it is payable from the normal retirement age (within the specific scheme). However, if the CE figure is provided after the member has reached the immediate pension point, then it will be valued on the basis that it is payable, immediately, which would result in the CE figure being higher.

Given the complex nature of the pensions concerned, it will highly likely that your family lawyer will seek to instruct a pension actuary. This is for both yours and their benefit, allowing you to fully appreciate the benefits you or your spouse/partner is entitled to and the affect this will have on their life moving forward. Furthermore, your family lawyer may request for a forecast, for a future date for when the member intends to leave.

Some practical points you will need to be aware of:

• Cash equivalent Statements for purposes of divorce is obtained from Veterans UK, is currently (May 2024) at a cost of £180.00.
• The CE may be valued multiple times throughout proceedings and so figures are likely to change. Should the matter proceed to a pension sharing order, the members benefits and the CE must be recalculated in a manner with complies with legislation to various significant dates; determined from the matrimonial documents.
• Calculations of pensions can only be taken as an estimate and cannot be relied on as the precise amounts for pension sharing purposes
• There is no external transfer and so the funds must stay within the scheme. However, the funds moving, as per the Pension Sharing Oder will be a separate pension and the individual will be entitled to their person benefits in accordance with the scheme rules.

Who do I tell there has been a Pension Sharing Order?

If a Pension Sharing Order has been awarded, in order for this to be implemented it must be done through Veterans UK Defence Business Services and a number of documents will need to be sent to them:

• The Order
• Pension sharing Annex(es)
• Your Decree Absolute/Final divorce Order
• The fee- the current fee to implement is £300 (for ½ pension sharing orders, but this can change)

It must be stressed that this article does not cover all points of the Armed Forces Pension Schemes, it is intended to give a brief summary of the complex nature of the schemes and why a pension actuary is likely to be appointed to assist in dealing with Armed Forces Pensions.

This article was written on 10.06.2024