I am delighted to be invited to contribute to these pages.  By way of background, I served a 20 year commissioned career in the Army with the Royal Logistic Corps.  I left in 2015 (partially as a result of the 2015 pension changes, thinking that “they won’t be making the change for the better will they”, when I clearly did not understand the schemes as well as I do now!)

I retrained into law.  This was always something that I had wanted to do, but a lack of focus during my A Levels meant I didn’t get the grades to go directly into Law school from the off.  In many ways, that has been a huge advantage, because my first career has given me an incredible insight into what I can do to assist members and veterans of the Armed Forces.

It was an easy decision to choose an area of law that I would be able to have a positive impact upon.  It had become clear to me also by this point in my life just how good our pension schemes are, and how different they are to all other schemes in the public sector, and indeed the wider civilian pensions environment.  I decided that pensions on divorce, and other areas (children issues, Forces Help to Buy etc) would be where I focus my time and energy, but particularly pensions on divorce.

This article is not intended as financial advice, and must not be construed as such.  Each person’s circumstances will be different and proper professional advice should be sought where sufficient consideration can be given to those, and the advice adjusted accordingly.  The aim of this piece is to update you all on recent legal changes to pensions, a bit of McCloud, some pensions on divorce, and perhaps to demonstrate that pensions law is not interminably dull.

Increase to Minimum Pension Age

Section 10 of the Finance Act 2022 amends the Finance Act 2004 by telling us that the normal minimum pension age is to increase from 55 to 57 from 6 April 2028.  The normal minimum pension age is the minimum age that people can start to take their AFPS (and other types of scheme pension).  In the case of AFPS this can be through the normal retirement ages, or ill-health benefits by making an application to the scheme.  I have seen a LOT of confusion around this among even pension professionals and want to put minds at rest; this increase does NOT affect the Armed Forces community.  There is a specific carve out in this section of legislation for uniformed services.

Uniformed services are defined as the military services (including reserves), firefighters, and the Police (but not the Civil Nuclear Constabulary).  All these pensions will continue to be accessible from the age of 55, and the increase to 57 will NOT affect these communities.  This appears to be a poorly communicated carve out, so know that you are now better informed than the vast majority of industry professionals about the exception to this age change; no change to AFPS minimum age.

The carve out means that our system which hinges around the age of 55 remains untouched by the pension age increase to 57.  It means that the minimum age we can access our pensions remains 55 years old. Under the AFPS 1975, the age at which the commutation goes back into the pension, along with the Consumer Prices Index uprating increments, remains at 55 years old.

There is a further carve out that may be of interest to those who left service and took up employment where further pension provision was developed.  The Finance Act 2022 also provides some protection from the age increases for certain scheme members (other than those uniformed schemes I have listed above), who on or before 4 November 2021 had an “unqualified right” to an earlier pension age than 57.  This is being called “2028 Protection”, and to benefit from it your scheme rules must have (on 11 February 2021) included an unqualified right to this earlier age.  Check with your civilian scheme provider if you qualify.

McCloud (for lawyers) and why it’s taking a long time

The delays in the remedy are well known.  What is perhaps less well understood is the legal backdrop and the legislative changes and adjustments that are at play here, across all the public sector schemes, which each have their own legislative structures.  All the schemes are subtly different, and all have their intricacies.  None are as intricate nor as complex as the AFPS.  Legislation has been enacted to remove lifetime allowance charges for 2023/2024 under the snappily titled “The Finance (No 2) Act 2023 (F(No2)A 2023”.  The lifetime allowance charge used to affect those with pension values that breached an allowed lifetime limit, but has since been repealed.  The McCloud issue of course is in rolling back the changes; how are these tax charges to be dealt with for the years from 2015 to 2022 when the allowance was in place?

A suite of legislation has been enacted to ensure that the necessary reforms to ensure that the inherent discrimination in some people being forced onto 2015 are properly removed, and that benefits received are free from tax implications, to include the lifetime allowance as discussed above.  There are other tax implications that have been allowed for (annual allowance) and legislation has been enacted to adjust the annual limits for those affected.

The process of rectification is still taking time.  It hasn’t helped that there have been hiccups along the way as legislation has been incorrectly applied or interpreted, resulting in further delays and problems being caused throughout the solution chain.  It’s not just “the government” causing delay.  In my highly simplistic view, I do not think anyone in particular is holding anything up.  The truth of the matter is that this is a highly complex multifaceted problem involving such intricate interconnected parts of the government, the law, and of course people, that it must be done correctly.  If getting the implementation wrong causes a financial loss to even one person across a multitude of different cases and scenarios, then that is further failure, and must be avoided.  It is complicated, and deserves to be dealt with carefully to prevent those at the edges being caused financial hardship.

What can and cannot be shared on divorce?

I get this question a lot.  I will say that this answer is limited in scope to the legal system in England and Wales – other jurisdictions might be different.  I very often hear that War pension, AFCS payments, medical ill health pensions and Early Departure Payments (EDP – a feature of 2005 and 2015 schemes) etc are not shareable with the other spouse on divorce; and that means they’re not “entitled to it” – right?

Technically, this is 100% correct.  There is no power vested in an English court to cause a War Pension to be shared with the divorcing spouse, or an ill-health lump sum, or ill-health pension, nor EDP.  That holds true for the source of what are termed “compensation” type payments, but the court has very wide powers to examine the assets available to the parties in a divorce and to adjust for that whatever the source.  That means that while the source of those payments is quite safe from being invaded by the court for the benefit of sharing it with the divorcing spouse, the fact that the income is being generated, or that the holder of the asset has access to a lump sum in compensation, means that the court is quite within its power to adjust the proportion of other shareable assets that the divorcing spouse receives instead.

It is open to the court to order what are known as “periodical payments” (monthly payments to the ex-spouse) to adjust for this additional income to one party that the divorcing spouse will, by virtue of becoming divorced, lose the enjoyment of.

I strongly suspect that there will be an increase (particularly among military divorces) in solutions to the problem involving the party with the benefit of the payments, either by giving up capital in another asset (a house) or being ordered to pay monthly payments of income to the other until, in the case of EDP, they stop being paid, and the pension is paid instead.

Early Departure Payments and Pension sharing

A final thought if I may, relating to EDP and pension sharing.  A pension share against a 2005 or 2015 scheme will only see the pension element reduced at the point that the pension is put into payment.  Pension payment could be as early as 55 years old on the 2005 scheme, or 60 years old on the 2015 scheme.  Otherwise 65 (2005 scheme) or state pension age (for the 2015).  A pension share against these schemes does not affect the amount of EDP that these schemes generate up to pension age.  This is almost counter-intuitive, but is absolutely correct.  The EDP are not pension payments and cannot be shared.  They are unaffected in value by any pension share of the relevant schemes.

A plea

If you are unfortunate enough to go through the upheaval of divorce, be certain that you engage proper, competent legal advice with a solicitor that fully understands the nuances of these schemes as they are complex and do require a thorough understanding of their intricacies.  Although legal advice is “expensive” it’s less expensive than getting it wrong and leaving yourself at a disadvantage when a pension is most needed in retirement, and funds to take a solicitor to court for negligent advice harder to come by.

I’m able to help in this situation and can be contacted on the means listed below.  Drop me an email, and whilst this is incredibly complicated will do my very best to make it understandable.