David Slattery v (1) Cabinet Office Civil Service Pensions by tgv36994

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									                                                               ANNEX to PC313

David Slattery v (1) Cabinet Office Civil Service Pensions & (2) HM Revenue
and Customs. High Court Judgment 16 February 2009

PENSION SHARING – HIGH COURT JUDGMENT

1.   The purpose of this note is to draw your attention to a High Court judgment
handed down on 16 February made against the Cabinet Office, as managers of the
PCSPS, in favour of a former civil servant, Mr Slattery. The case concerns the
handling of pension sharing orders (PSOs) for those whose pension benefits are
brought into payment before scheme pension age.

Summary of the case

2.    Mr Slattery, a former Civil Servant was subject to a PSO in 2002 of 50%. A
Cash Equivalent Transfer Value (CETV) was produced in accordance with the terms
of the PSO. In 2006 Mr Slattery, then aged 57, took early retirement on Approved
Early Retirement terms. In brief, this meant that he received his pension and lump
sum benefits without any actuarial reduction for early payment. The PCSPS applied
the full pension debit at the time Mr Slattery left on AER terms on the grounds that
this merely brought forward the pension he was entitled to at age 60. Mr Slattery
claimed that pension debit deductions should not have been made until he reached
age 60 (his pension age under the PCSPS rules).

Judgment

3.    The Judge concluded that a distinction needed to be drawn between the
pension benefits that were reflected in the CETV (which, for the PCSPS, are
restricted to those which a scheme member has of right) and those that were granted
on a discretionary basis after the divorce. Only those benefits taken into account in
calculating the CETV should be reduced under the relevant legislation (s31 of the
Welfare Reform and Pensions Act 1999).

4.  The full text of the judgment can be found at
www.bailii.org/ew/cases/EWHC/Ch/2009/226.html

Implications

5.    As regards pension payments, the judgment is clear that – in cases of early
payment of pension on other than actuarially-adjusted grounds – the pension debit
can be applied only with effect from the pension age assumed in the CETV
calculation. The judge was not asked to consider the implications for the lump sum
element of the pension debit applying in an automatic lump sum scheme such as
classic, but we have concluded that we will continue to make the lump sum
deduction at the time benefits come into payment as it would, in practical terms, be
impossible to do anything else. However, we will adjust the lump sum deduction to
reflect the actuarial reduction that would have applied on early retirement on
actuarially-adjusted terms. We consider that this approach is consistent with the
judgment.

6.   For departures on actuarially-adjusted terms, we will continue to apply the
pension and lump sum debits at the point that benefits come into payment, but will
adjust them to reflect the actuarial reduction.
                                                                 ANNEX to PC313

7.    You recently gave us the results of a trawl of your PenServer databases to
identify other PSO cases where the member has left on early retirement terms. We
will need to correct these historic cases (around 40 cases across of APACs). We will
be providing you with guidance about how to do so shortly. We are also considering
whether changes to the scheme rules are required.

Finance Act 2004

8.   We concluded that the reduction in pension at age 60 was covered by the
provisions of Finance Act 2004. But we have raised the following points with HMRC
as we do not think that the judgment is particularly consistent with the Act.

•    Application of the pension debit at pension age will mean that the LTA
     assessment, which is carried out when benefits come into payment, will be
     higher than would have been the case if the debit had been applied on
     retirement. In most cases this probably won’t have any practical implications
     but in some cases will lead to an unexpected LTA tax bill.

•    The higher initial pension will lead to the potential for a higher tax-free pension
     commencement lump sum (even after the pension debit lump sum is deducted).

9.   HMRC have confirmed our understanding and their policy people will consider,
in due course, whether legislative changes are needed in the light of the ruling.


CSP Cabinet Office April 2009

								
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