Pension Sharing Order

Hi All, 

I don't know if anyone has come across a case like this?

Adviser transferred a pension that had a pension sharing order and allowed the client to take the tax-free cash. 

The spouse has since contacted the initial scheme to ask where the money is and they have told the person it has been transferred and have compensated the client.

The initial scheme is now pursing legal action to recover the money that they have sent.  

We have been told that the new scheme can return the money to the initial scheme to allow them to extract the money and whilst this may seem an additional layer of complexity, we are wondering if this will allow the initial provider to extract the funds without the client having to pay income tax on the funds?

N

Comments

  • Hi,

    The simple answer to your question is no.

    And the reason is because regardless of any administrative errors leading to this chain of events, it is not reasonable to conclude that the original pension scheme member wasn't aware that they had a PSO attached to their pension. The burden of proof would be on the individual to demonstrate that they were in a position to rely on the accuracy of the scheme administrators records (and there will be some circumstances where this could fly).

    Assuming there aren't, this individual has received benefits from a crystallisation of funds that they were not legally entitled to receive. The amount of PCLS was 25% of their share according to the PSO, with 75% of the balance taxable at the marginal rate as drawn (assuming this is all post April 2015).

    But the reality of putting it right is quite a bit more complicated.

    How has the ceding scheme 'compensated' the client? The answer to that is going to be important.

    In simple terms, if the ceding scheme has sent a qualifying pension credit to a new scheme for the spouse (or established a new policy in-house), it is, in my opinion, perfectly entitled to seek restitution from the original member. In my experience, when schemes make mistakes they take the easiest option to cover their liability to the error. In taking this action, the ceding scheme has put the spouse into the position they would have been in were it not for its error, and has done so at the earliest opportunity. But the money it used to do that is due back from the original member. (There are additional questions to ask about what amount was the compensation and how was it calculated?)

    The receiving scheme has paid out too much PCLS, which is an unauthorised payment, and is probably going to have to be paid back. This is where it starts to get messy. The receiving scheme could unwind the situation to the point in time immediately before the BCE, and send the respective share back to the ceding scheme. With this there is investment growth to consider, advice charges that have been unfairly deducted from the spouse's share, and the PCLS that might have been spent. It isn't straightforward.

    Ben

Sign In or Register to comment.