These cases are complex but relatively rare. So why are members being hit with hefty fees when they're already facing financial stress?
Some schemes, in a refreshing move, have decided to waive these charges entirely. They see divorce as a life event that shouldn't further burden members, especially when it often results in a reduction of pension liability. It’s a bold stance, but one that raises a bigger question: why is the industry still passing these costs onto members at all?
As an administrator, I understand just how complicated these processes are. Divorce can involve intricate calculations and legal requirements, but so do partial transfers or Pension Increase Exchange (PIE) exercises – and members aren't asked to cover the costs for those. So why single out divorce? Are we, as an industry, moralising about it?
Let's be honest – many schemes already handle complex member requests without charging extra. Members ask for all kinds of detailed and frequent information, and those administrative costs are absorbed. Yet when it comes to divorce, suddenly members are expected to foot the bill.
To make matters worse, actually collecting these fees is often a headache. Divorce usually involves two parties, and one or both might refuse to pay, or simply can't afford to. This makes the whole process even more cumbersome for schemes, and ultimately for members too.
Isn't it time we stopped penalising members during one of the toughest periods of their lives? Rather than adding to their financial burden, pension schemes should absorb these costs, as they do for other administrative processes. It’s time to stop treating divorce differently and rethink the industry's approach.
After all, no other life event is singled out like this. Why should divorce be any different?
Briefing: How pension charges during divorce work
When a couple divorces, any pension rights that have been built up during the marriage are typically considered part of the assets to be divided. This process is called pension sharing and can involve transferring a portion of one party’s pension to the other.
For defined benefit schemes, the process is especially complex, as administrators need to calculate the exact value of the pension to be split. The calculation involves factors such as life expectancy, scheme rules, and current market conditions. Once calculated, a transfer is arranged, or the pension is adjusted to reflect the division.
Schemes typically charge for this process, as it requires a significant amount of work, including liaising with legal professionals, calculating pension values, and managing the transfer. The PLSA’s updated guidance, effective from 2 January 2024, offers recommendations on what these charges should be. Schemes can decide to charge more, less or waive them altogether and absorb the costs themselves.
Daniel Taylor – Client Director, Trafalgar House
