A pension credit under the terms of a pension sharing order can be implemented as an internal or an external transfer.

Internal transfers

Where dual membership of the same pension scheme is permitted, the ex-spouse is allowed to make an internal transfer of the pension credit and become a member of the pension scheme in their own right.

For public sector occupational pension schemes, which are unfunded, the only option offered to the ex-spouse will be an internal transfer, except for in some very rare circumstances such as when the scheme is closed to new members.

An internal transfer gives the ex-spouse a ‘shadow’ membership in the occupational pension scheme.

The pension scheme is able to offer any benefits package they like (within certain requirements) as an internal transfer, so this will need careful analysis and comparison with alternative options, should both options exist.

Where dual membership of a pension scheme is not permitted, the ex-spouse will need to use their pension credit to make an external transfer to another pension scheme.

External transfers

This external transfer can be made into an existing occupational pension scheme or a new personal pension arrangement can be created to receive the external transfer.

Where the choice between an internal and external transfer exists, you may decide that you wish to transfer the pension credit into a personal pension.

This provides an element of investment control over the pension benefits which appeals to some people, but by no means all.