EARMARKING ORDER
An earmarking order is an order to the trustees of the pension fund that, when the pension matures and falls due for payment, a proportion of the lump sum is paid to the party who is being awarded the order and that a proportion of the pension itself is paid monthly (or at the interval provided in the pension) to the receiving party rather than to the "owner" of the pension.In effect, the order is a mix of a lump sum order and a periodical payments order. Like a periodical payments order the whole earmarking order will cease to have any effect if the receiving party remarries before payment falls in. If they were to remarry after the pension came in for payment, the lump sum would not be returnable by the wife but her periodical payments would stop.
LUMP SUM ORDER
A lump sum order is really just the same as the order, which we looked at in our examination of the types of order available in ancillary relief applications. It is a payment by the holder of the pension of extra, and presently available, capital in order to buy off the other party's interest in the pension. If we take the example given of the less well off couple under the explanation of Property Adjustment Orders and assumed that the husband had been paying into a pension which would produce benefits on his retirement, the court might take the view that he need not have any ongoing interest in the house (that is, he should not have a charge back and should not continue to hold it jointly with his ex-wife) and should instead have his pension left untouched. This effectively gives the wife a lump sum equivalent to the husband's entire share of the house but he is compensated because his pension will not be earmarked for the wife's benefit.For the wealthy couple described under the Lump Sum heading, if the couple had joint savings and the husband had a good pension, the wife might take more of the savings as a lump sum rather than a share of the pension rights.
WHICH IS THE ORDER I NEED?
It will depend on your circumstances. A young divorcing couple will be many years away from any pension entitlement falling in for payment and the value of the fund (the transfer value) will be low. The wife would probably do well to seek a lump sum order in respect of the part of the pension that built up during the marriage. She may very well remarry before retirement and get no benefit from an earmarking order. A lump sum would also achieve the usual objective of a clean break.An older couple nearer to retirement, say over the age of 50 where the wife has only 10 years or less of working life left before her retirement would need something different. The husband would want to clear his wife's claim out of the way so that he enjoys the full amount of his pension but the wife might be better advised to seek a share of the benefits through an earmarking arrangement. Of course, if the husband is set to retire at 65, she may have about 5 years to wait between her retirement and the payment of anything from the pension fund.
HOW IS THE ENTITLEMENT VALUED?
The court will look either at the "transfer value" - the value of the fund which the pension trustees would have to invest if the pension was due for payment now or the amount which would be moved to another scheme if the husband was changing jobs - or at the benefits which the wife could look forward to if she was not getting divorced and was to stay with the husband until the pension was payable.Solicitors will usually use actuaries to calculate the value of the pension and the amount necessary to reflect this by way of a lump sum although the trustees of the pension scheme or the pension company offering the plan will be able to provide the necessary detail about values and a forecast of what the pension might produce on maturity.
THE PENSION SPLITTING ORDER
The Pensions Act also provides for the creation of a new kind of order whereby a part of the money held in the fund for one party can be removed to the other party's pension scheme in order to increase the value of that fund. That part of the Act was not enabled when the Pensions Act first came into force but it is believed that this kind of order will be available to the courts during the course of December 2000 and thereafter.The order should solve a few of the problems caused by the earmarking style of order. Firstly, the beneficiary does not have to wait until his or her ex-spouse retires to get the benefit. The order increases the value of the recipient's pension fund so it will apply on the retirement of the recipient and not of the ex-husband or wife.
Secondly, in circumstances where a divorced husband loses contact with his ex-wife (or vice versa) it may be difficult for the wife to get what she is entitled to under an earmarking order.
What happens, for example, if the husband changes to a different pension provider?
What happens if the pension provider knows of its obligations but is unable to trace the wife to whom it should be making payment?
Thirdly, what happens if, in her late 50's or early 60's the wife cannot face the prospect of a lonely retirement and wants to remarry?
Is it fair that under an earmarking order her pension entitlements would come to an end in circumstances where, certainly, neither she nor her new husband has time to build up any meaningful fund for her before retirement?
These are just some of the problems which might make a splitting order a more attractive proposition and it remains to be seen what use will be made of these orders in the future.
