When we think of divorce we often think of spouses, children, even pets. But divorce can have a wider impact, in particular where a person going through divorce has a SSAS pension. This is because the way SSAS pensions are treated under the divorce law means that it’s not only the divorcing Member who’s necessarily impacted by their divorce, but the other Members of the SSAS too. Professional Trustees and Members need to be aware of the potential impacts of a divorcing Member and take prompt and detailed legal advice from Family Lawyers who understand SSAS, like Buckles Solicitors, and from Financial Advisors familiar with divorce and SSAS.
The treatment of pensions in divorce is governed by the Welfare Reform and Pension Act 1999 under a mechanism called ‘Pensions Sharing’. Although a SSAS is a trust, a SSAS is governed by Welfare Reform and Pension Act 1999 and is subject to the Pensions Sharing rules.
Once a spouse’s marital assets have been assessed, the court may award a percentage of one party’s pension value to the other person. The amount awarded is referred to as a Pension Credit, and the amount deducted from the other party is known as a Pension Debit. Here we will set out the considerations for both SSAS Professional Trustees and Members when dealing with a scheme that’s subject to a Pension Debit.
Order, Order
Pensions Sharing in divorce must be granted by a Court Order either by the Court’s own decision or by consent between the divorcing spouses. Where a Member of a SSAS is subject to a Pension Debit order the order will set out the percentage of the Member’s SSAS assets to be paid to their ex-spouse The Trustees will have 4 months from the date of receipt of all the necessary documents (which includes the decree absolute or final divorce order, whichever is the later). Professional Trustees should be aware that they and the Members of the SSAS will be required to strictly adhere to the time-limit set out in the Order.
Pension Debit
The process for dealing with a Pension Debit in a SSAS and considerations for managing the Pension Debit is:
Notice
- The SSAS will need to give notice to the member’s ex-spouse when the 4 month implementation period commences.
Valuation of the Assets
- All assets of the SSAS need to be valued, including all commercial property in the SSAS and all unlisted shares in the SSAS. Where the SSAS has made loans to third parties, associate or sponsoring employer then the value of the loans together with the likely interest will be included in that valuation.
- The valuation can be obtained at any time during the 4 month period, but once they valuation has been obtained then that is the value that is set for the purposes of the Pension Debit. Professional Trustees will need to be pro-active in instructing valuations of the assets in the SSAS and should be aware that obtaining valuations of Commercial Properties can be a long-winded process.
- Once the valuation of the assets of the SSAS has been ascertained, then the amount that makes up the divorcing Member’s share will need to be identified. This should be a question of the entirety of the value of the SSAS multiplied by the percentage of the Member’s interest, but it may be the case, for example, that certain assets in the SSAS are earmarked and so account will need to be taken of that by the Professional Trustee and the members.
- The amount payable to the member’s ex-spouse will then be calculated based on the Court Order.
Retained in SSAS or Transferred Out?
- The member’s ex-spouse will need to decide whether the ex-spouse’s pension share will remain in the SSAS or whether it will be transferred to either another SSAS or another destination Pension Scheme. Professional Trustees will need to be alive to the following:
- Do the Scheme Rules allow the ex-spouse to retain their Pension Share in the SSAS?
- Do the other members of the SSAS want the member’s ex-spouse to retain their Pension Share in the SSAS. Although it may be counter-intuitive for Members to have an additional trustee it may well be preferable to having to fund the payment of a Pension Debit from what may be the illiquid assets of the SSAS. Further the continuity of having funds in the SSAS may well be better for continuity of investment. The divorcing Member may also be concerned about the lack of asset separation from ex-spouse.
Pension Debit Retained in the SSAS
- If the Scheme Rules allow and the member’s ex-spouse chooses to retain the Pension Share in the SSAS then the Professional Trustee will set up a separate arrangement within the SSAS for the member’s ex-spouse. The ex-spouse will become a member of the SSAS and will need to be a trustee with all the decision-making powers that entails (including the unanimous decision making requirements from which SSAS suffers).
Pension Debit Transferred to another Registered Pension Scheme
- If the member’s ex-spouse requires the Pension Debit to be transferred to another registered pension scheme the SSAS the member’s ex-spouse can require that the payment of the Pension Debit is made in cash. This can provide a significant issue for the Professional Trustee and the Members of the SSAS to ensure that there are sufficient liquid assets within the SSAS to make the payment.
- The Pension Debit can be satisfied by way of an In Specie Transfer of assets to the destination pension scheme nominated by the member’s ex-spouse, but the Welfare Reform and Pension Act 1999 is clear that the spouse is not required to accept an In Specie Transfer and may require the payment is made in cash.
- If the assets cannot be liquidated quickly enough then the Professional Trustee and Members will need to look at the options of the Members making a contribution to the SSAS or the Scheme taking borrowing to cover the Pension Debit.
