In the case of David Slattery v (1) Cabined Office Civil Service Pensions (2) HMRC the High Court rejected the Deputy Pensions Ombudsman’s determination that a Pensions Sharing Order (PSO) granted in 2002 should apply to additional benefits he received as a result of entering into an approved early retirement agreement in 2006. The Welfare Reform and Pensions Act 1999 allows the court to make a PSO that divides the “shareable rights” of a scheme member between them and their former spouse on a divorce.

In this case a PSO was granted in 2002. In 2006 the member’s employer agreed to allow the member to retire early and take an early unreduced pension. The member argued that the PSO should not apply to pension he received before he reached his normal retirement age of 60. He argued that the PSO was not prospective and he only became entitled to his unreduced early retirement benefit after the PSO was granted. Proudman J of the High Court held that in principle a member’s future pension rights can be a shareable right under a PSO. He held that shareable rights included pension benefits based on accrued rights that were payable in the future. Shareable rights could also include other future rights, for example discretionary benefits granted in the case of established custom.

However, Proudman J held that in this case the early retirement benefits were not sharable because the early retirement pension was a discretionary and separate benefit which was not taken into account when the member’s pension rights were valued for the purpose of the PSO. He concluded that the reason why it was not taken into account was because it was not in contemplation at the time of the PSO.

The High Court allowed the appeal against the Deputy Ombudsman’s determination.

Comment

The best practical step is for employers and trustees to check whether or not there is an existing PSO when reaching a decision on augmented benefits and make the impact clear when deciding the level of increased benefits.