Supreme Court rules in favour of employee’s former spouse in pension divorce case


The Supreme Court has allowed an appeal from the former spouse of a retired British Coal employee in a case concerning the period of pension scheme membership that should be taken into account upon the division of assets.

The Scottish case, McDonald v Newton or McDonald, relates to Mr McDonald, who worked as a miner for British Coal between 11 December 1978 and 10 August 1985. During this time, he contributed to the organisation’s occupational pension scheme. Mr McDonald retired early at the age of 32 due to ill health. In 1985, he stopped contributing to the pension scheme and he began to receive his pension income.

Mr McDonald ceased to co-habit with his wife on 25 September 2010. Mrs McDonald then sought a pension sharing order under the The Family Law (Scotland) Act 1985 on the basis that Mr McDonald’s pension forms part of the matrimonial property that would need to be taken into account in arranging financial provision.

The case centres around the interpretation of The Divorce etc. (Pensions) (Scotland) Regulations 2000, which uses the cash equivalent transfer value (CETV) to determine a person’s rights or interests in occupational and personal pension schemes. British Coal has provided a CETV figure of £172,748.38 for the period up to 25 September 2010.

Mr McDonald contends that the pension share should reflect the period he was an active member and making contributions to the pension scheme. This would mean the value of the pension benefit that is matrimonial property is £10,002.

Mrs McDonald contends that the CETV should refer to the period of Mr McDonald’s entire membership of the scheme up until the time they separated, including his time as both an active member and when he was drawing retirement income. This would make the value of the pension share £138,534.

A ruling in December 2013 agreed with Mr McDonald. Mrs McDonald appealed to the Inner House of the Court of Session, but this was dismissed in August 2015. Mrs McDonald then brought her appeal to the Supreme Court.

The Supreme Court has allowed Mrs McDonald’s appeal and the case will now be remitted to the sheriff at Edinburgh.

The court ruled that the period of membership under the 2000 Regulations refers to the period of the individual’s membership of the pension arrangement, regardless of whether contributions are being made during that period.

The court found that the interpretation of membership could not be confined to active membership, particularly as the 2000 Regulations apply to both occupational and personal pension schemes.

The court’s interpretation does not necessarily mean that the value of an interest in a pension must be shared equally between the parties.

Lord Hodge, one of the judges who ruled in the case, said: “It is clear, and is not disputed, that the 2000 Regulations apply not only to occupational pension schemes but also to personal pension schemes. The definition of ‘active membership’ in section 124(1) of the Pensions Act 1995 applies only to an occupational pension scheme and makes no sense in relation to personal pension schemes.

“It is to be assumed that Parliament intended the provisions of the Regulations to operate sensibly in relation to the differing pension schemes and state pension rights.”