82.Since December 2000, financial settlements on divorce have been able to provide for one party to a divorce to split his or her current or prospective entitlement to old additional pension with his or her former spouse. The rules on pension sharing have applied to civil partners since December 2005.
83.Where a pension sharing order is made, a court will order a percentage split or an amount to be transferred. The apportioned benefits are known as “pension debits” and “pension credits”, created under the Welfare Reform and Pensions Act 1999. The former spouse or civil partner (“the transferor”) will have his or her prospective additional pension entitlement reduced by the value of a pension debit and the beneficiary (“the transferee”) will gain entitlement to a pension credit that is equal to the amount of the debit. Pension sharing can be applied to current or prospective entitlement to additional pension or to shared additional pension from a previous divorce.
84.The Act does not affect the validity of a pension sharing order made before the Act comes into force against a person who reaches pensionable age on or after the date the new state pension is introduced.
85.Although the new state pension will not comprise any additional pension, the Act does allow for pension sharing of the new state pension in certain limited cases.
86.It will still be possible in the future to make a pension sharing order against a person who has a transitional rate state pension under section 4 that exceeds the full rate of the new state pension. But the pension sharing order can only relate to the amount of that excess.
87.If a pension sharing order has been made against someone who reaches pensionable age on or after the start date of the new state pension, the rate of his or her state pension under section 4 may be reduced (see section 14).
88.A person who reaches pensionable age on or after the start date of the new state pension may also benefit from a pension sharing order made before the start date of the new state pension, or made against a person who reaches pensionable age before the start of the new state pension. In this case the person will be entitled to a state pension under section 13 based on the pension sharing credit. This will be paid in addition to any state pension the person is entitled to, based on his or her own National Insurance record. Calculating entitlement in this way means that a person is able to benefit from qualifying years obtained under the new state pension rules notwithstanding the award of a pension credit.
89.Schedule 8 sets out the rules for calculating the appropriate weekly rate where a pension sharing order has been made.
90.Schedule 9 provides for increases of shared state pension (pension credit) once payment has started, as follows:
if a person’s total state pension including the pension credit is equal to or less than the full rate of the new state pension the amount of the pension credit will be uprated in line with earnings in the same way as the full rate of state pension is uprated (see paragraph 49);
if a person’s state pension is less than the full rate of the new state pension but exceeds the full rate when the pension credit is taken into consideration, the amount of the pension credit up to the full rate of state pension will be increased in line with earnings (in the same way as the full rate of state pension is uprated), and the excess of the pension credit above the full rate will be increased in line with prices (in the same way as the excess of any transitional rate of pension under section 4 is uprated - see paragraph 63); or
if a person’s state pension alone is equal to or higher than the full rate of the new state pension, then any pension credit will be increased in line with prices (in the same way as the excess of any transitional rate of pension under section 4 is uprated).
91.Schedule 10 explains how a person’s appropriate weekly deduction is calculated if a sharing order has been issued.
92.Schedule 11 amends existing legislation to take into account the introduction of the sharing of the new state pension. Among other things, it makes provision for those reaching pensionable age before the start of the new state pension to receive shared additional pension in relation to an order made against someone who reaches pensionable age on or after the start of the new state pension.