A pension compensation sharing order after the PPF took over

By Garry SteedmanPublished 28 October 20269 mins read11 sections

A wife learned that her husband’s employer had gone bust and his final salary pension had moved into the Pension Protection Fund. Her proposed settlement relied on a normal pension sharing order. Our family law specialists advised her that she needed a pension compensation sharing order instead, and showed her how to get one. This is an anonymised account.

A pension that was no longer a pension scheme

The couple had been married for many years. The husband had worked for one company for most of that time. His final salary pension was the largest asset after the family home.

When they separated, the employer was already in trouble. A letter then told him the scheme had entered an assessment period. Some months later a second letter said the Pension Protection Fund had taken it over.

Our client had an unsigned agreement in her drawer. It split the pension with a pension sharing order against the old scheme. She asked us one question. Would it still work? She feared that half of their retirement savings had simply vanished.

If you are in the same place, the money has not vanished. The rules have changed, and the paperwork has to change with them.

What the law says about a pension compensation sharing order

A normal pension sharing order under section 21A of the Matrimonial Causes Act 1973 shares rights under a pension arrangement. However, once the Board of the Pension Protection Fund takes over a scheme, section 161 of the Pensions Act 2004 transfers the scheme’s assets to the Board. The trustees are discharged, and the Board pays compensation instead.

So the husband no longer held scheme rights. He held rights to PPF compensation. Section 21B of the 1973 Act defines a pension compensation sharing order as one that shares those rights by a set percentage. Section 24E gives the court power to make that order on or after a divorce order. It cannot take effect until the divorce is final.

Section 25E also tells the court to treat PPF compensation as a resource when it weighs the section 25 factors. The compensation still counted as part of the family’s wealth.

How we advised her on the pension compensation sharing order

First, we explained why the old agreement would fail. It named the wrong body and the wrong kind of order. The scheme’s trustees no longer had anything to share.

Next, we turned to valuation. Rule 9.37 of the Family Procedure Rules shows what the takeover should trigger. A member who gets the Board’s notice must pass it on within 7 days and ask the Board for a forecast of his compensation. We helped her write to his side to ask for both.

We then advised her to get the Board’s own valuation, called a cash equivalent value. Our guide to the pension CETV explains why a transfer value matters. A scheme figure from before the takeover was no longer the right one.

The couple then agreed terms. Because the deal included a pension compensation sharing order, rule 9.41 required the husband to ask the Board for the details in Section C of its inquiry form. Meanwhile, we helped our client check every term against those details.

Before anything went to court, we suggested sending the proposed order to the Pension Protection Fund. It checks free of charge whether it can carry out the terms, and it says it replies within 21 days. That step avoided a sealed order the Board could not apply.

Finally, we covered the small print. Rule 9.44 says the order must state in its body that there is to be pension compensation sharing in line with the annex, and the annex must go with it. Section 24G lets the order say who pays the Board’s charges. We advised her to agree that point in writing so it could not become a later dispute.

The outcome: her share of the PPF compensation

Our client and her husband lodged the agreed financial consent order, and the court approved it. It shared his PPF compensation by an agreed percentage, with the annex attached.

Once the divorce was final, she sent the Board the order, the annex and the final order. Under sections 114 and 115 of the Pensions Act 2008, the Board then has four months from receiving the papers and information it needs to carry out the sharing. She became a member of the Pension Protection Fund in her own right, with her own compensation at retirement.

Every case turns on its own facts, so this is not a promise about any other family.

What you can take from this

Check the pension’s status before you sign anything. An assessment period letter or a transfer notice changes the order you need.

Also, use the Board’s own figures. A value from the old scheme may be out of date.

Above all, send the proposed order to the Board early. Our main guide to the pension sharing order covers ordinary schemes. You can also read how we prepare these success stories.

“A Pension Protection Fund takeover changes the paperwork, but the compensation is still a resource the court must take into account, however far off payment may be. Sharing it is one option. Another is to agree a larger share of the home or savings in return. Compare the two honestly: shared compensation gives you an income in retirement, while equity gives you security now, and which matters more depends on your age and housing.”

Garry Steedman, Family Law Consultant, Kabir Family Law

Talk it through with us

If a pension in your divorce has moved into the Pension Protection Fund, you do not have to work it out alone. A free initial consultation is confidential and carries no obligation. Tell us what the pension letters say, and our family law specialists will explain your options.