The Local Government Pension Scheme (Pension Sharing on Divorce) (Scotland) Regulations 2001

Explanatory Note

(This note is not part of the Regulations)

These Regulations make further amendments to the Local Government Pension Scheme (Management and Investment of Funds) Regulations 1998 (“the Funds Regulations”) and the Local Government Pension Scheme (Scotland) Regulations 1998 (“the 1998 Regulations”). In this note “the Scheme” means the Pension Scheme constituted by the 1998 Regulations. They have retrospective effect from 1st December 2000 as authorised by section 12 of the Superannuation Act 1972. References to the Secretary of State in these Regulations means the Secretary of State for Social Security.

Regulation 2 amends a provision of the Funds Regulations which deals with costs, charges and expenses which may be paid out of the Fund, to exclude charges which relate to pension sharing on divorce.

Regulation 4 inserts a new Part VI into the 1998 Regulations to allow for pension sharing on divorce. Part VI (Regulations 138 to 160) have the following effect—

• Regulation 138 (Interpretation of part VI) explains that this new Part is to be read using the definitions in a new Schedule 1A as well as other expressions which are defined in Schedule 1 to the 1998 Regulations. The regulation also provides that the provisions in Parts I to V of the 1998 Regulations are subject to the provisions ofPart VI.

• Regulation 139 (pension sharing mechanism in the Scheme) provides for pension sharing in respect of a member’s shareable rights under the 1998 Regulations but excludes any benefit payable to a widow or widower or other dependant of a deceased member.

• Regulation 140 (pension sharing order activates pension sharing creating pension debits and credits) provides for the member’s shareable rights to be debited and for the transferee to be entitled to a pension credit.

• Regulation 141 (calculation of “appropriate amount”) provides for the calculation of the specified percentage or the amount to be transferred and defines valuation day and transfer day for the purposes of this regulation.

• Regulation 142 (pension debits and reduction of benefit) provides for the shareable rights of the debit member to be reduced in accordance with the appropriate percentage of the pension credit.

• Regulation 143 (effect of pension sharing on protected rights and guaranteed minimum pension) provides for the debit member’s protected rights or guaranteed minimum pension to be reduced by the appropriate percentage.

• Regulation 144 (discharge of pension credit liability by conferring “appropriate rights” or making transfer payment to another scheme) provides for the Scheme to be amended to bring the ex-spouse into the Scheme or to make a transfer payment to another scheme.

• Regulation 145 (qualifying arrangements) specifies the appropriate destinations for a transfer and the types of annuity contracts or policies of insurance which are acceptable.

• Regulation 146 (disqualification as destination for pension credit) defines those destinations which are not appropriate for a pension credit transfer.

• Regulation 147 (adjustment to the amount of the pension credit - payments made without the knowledge of the pension debit) makes provision for the pension credit to be reduced in circumstances where the Scottish Ministers are not aware of the pension debit and make payment in respect of the shareable rights. If the cash equivalent of the member’s shareable rights after deduction is less than the amount of the pension debit, the pension credit will be reduced to the lesser amount.

• Regulation 148 (“implementation period” for discharge of pension credit) provides for Scottish Ministers to discharge their liability in respect of a pension credit within the 4 months “implementation period”. The regulation also sets out the documents which Scottish Ministers must receive in order to establish the day on which the implementation period begins. It also sets out the requirement to notify the transferor and transferee of that date or any cessation or postponement of that date.

• Regulation 149 (failure to discharge liability in respect of pension credit within the implementation period and death of ex spouse within period), paragraphs (1) and (2) provide that where the Scottish Ministers fail to discharge their liability within the implementation period they must notify the Regulatory Authority within the period prescribed in regulations under section 33(2)(a) of the 1999 Act and section 10 (civil penalties) of the Pensions Act 1995 will apply. The prescribed period set out in section 3 of the Pension Sharing (Implementation and Discharge of Liability) Regulations 2000 (S.I. 2000/1053) is 21 days from the day immediately following the implementation period. Paragraph (3) provides for Scottish Ministers to request an extension of the implementation period under section 33(4). Under section 4 of the Pension Sharing (Implementation and Discharge of Liability) Regulations 2000 the request must be made before the end of the implementation period. Provision is also made under section 4 of those Regulations for the implementation period to be postponed or to cease where an application is made for leave to appeal out of time. Paragraph (4) defines Regulatory Authority as the Occupational Pensions Regulatory Authority. Paragraphs (5) to (7) deal with the position where an ex-spouse dies before the administering authority has discharged their liability.

• Regulation 150 (appropriate rights/pension credit benefits under the Scheme) sets out the appropriate rights in respect of the pension credit member. The credit member benefits are restricted to pension and lump sum on retirement and lump sum on death and will be treated as a preserved pension. Provision is made for benefits to be increased under the Pensions Increase Act 1971. Benefits will be payable on reaching normal retirement age for the Scheme (age 65) and may not be deferred. Provision is made for early payment of the pension credit with actuarial reduction.

• Regulation 151 (additional voluntary contributions) provides that where there is a reduction in the pension debit member’s AVCs the pension credit cannot be included in the main scheme benefits and must be used in one of the permissible ways provided in regulation 65(3) of the Local Government Pension Scheme (Scotland) Regulations 1998.

• Regulation 152 (additional contributions and additional periods) prevents the active member from purchasing additional service to replace any rights debited and restricts the amount of additional service which may be purchased to the amount of service the member could have purchased if the pension sharing order had not been made. This restriction is relaxed in respect of moderate earners whose earnings at the date of divorce or annulment are not more than 25 per cent of the permitted maximum or such other amount as may be prescribed.

• Regulation 153 (commutation small pensions) provides for a pension credit to be commuted on grounds of triviality. Where a pension credit member is also a member of the Scheme, the pension credit may only be commuted if the aggregate of pension or pensions under the Scheme falls below the limit in regulation 48.

• Regulation 154 (commutation:- exceptional ill-health) provides for the pension credit to be commuted for a lump sum payment before the normal benefit age on grounds of terminal ill-health where the life expectancy is less than one year.

• Regulation 155 (pension transfers) prevents the Scheme from accepting a transfer of a pension credit from another occupational or personal pension scheme.

• Regulation 156 (charges in respect of pension sharing costs) allows the Scottish Ministers to recover the costs accrued in respect of pension sharing as set out in the Pensions on Divorce etc (Charging) Regulations 2000 (S.I. 2000/1049).

• Regulation 157 (excluded membership) ensures that, where a pension credit member is also an active or deferred member, the pension credit must be disregarded when assessing the length of service in relation to the Scheme service and benefits.

• Regulation 159 (assignment) provides for the pension credit not to be assigned except where required by law.

• Regulation 160 (application of Part VI to deferred members and pensioner members under the 1987 Regulations) ensures that deferred and pensioner members who left the Scheme prior to 1st April 1998 are covered by these Regulations.

Regulation 5 inserts a new Schedule 1A into the 1998 Regulations giving the interpretations which apply to Part VI additional to the interpretations in Schedule 1.

Regulation 6 effects minor and consequential amendments to the 1998 Regulations.