Posted August 16th, 2010
I am often asked who can request pension valuations and whether there should be a charge.
It should be noted that the valuation will only be provided to the scheme member and not their spouse. The pension scheme will usually allow for one free Cash Equivalent Transfer Values (CETV) quotation to be provided each year.
However, there are occasions when a charge will be applied and I have set out some examples below:
- When a further valuation is requested within the one year time frame.
- Where the pension is in payment. Because a pension in payment cannot be transferred a CETV is irrelevant. The correct basis is a cash equivalent of benefit (CEB) and there will be a cost.
- When the valuation is needed more quickly than the scheme’s normal turnaround. For example, the NHS pension scheme usually works to a 3 month turnaround time, although, they will provide it in less than 6 weeks for a charge of £300 plus VAT.
- When the member is within 12 months of normal retirement date.
- Servicing members of the Armed Forces Scheme who already qualify for immediate benefits as soon as they retire. For those members with reckonable service of more than 16 years for officers and 22 years for other ranks the scheme levies a charge of £150 plus VAT. Where the service is less than 16 years and 22 years respectively there is no charge.
The National Association of Pension Funds (NAPF) has set out guidance for pension scheme trustees on charges and you can find further information here. NAPF gives a range of charges for you to judge how much you are being charged against. Note that it is only guidance and that some schemes will charge more.
If you would like further information on CETVs, valuations and charges, please contact us on 0800 092 1229 or email advice@thedivorceifa.co.uk
Tags: Armed Forces Scheme, Cash Equivalent of Benefit, Cash Equivalent Transfer Value, CEB, CETV, Charge, Divorce, Immediate benefits, NAPF, National Association of Pension Funds, NHS Pension, NHS Pension Scheme, Normal Retirement Date, Pension, Pension & divorce, Pension in Payment, Pension Scheme, Pension valuations, Reckonable service, Scheme, Scheme member, Spouse, Valuation, Valuations | Posted in Transfer values |
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Posted August 6th, 2010
The Coalition Government’s emergency budget announced that public sector pensions will in future link to the consumer prices index (CPI) rather than its current basis, the retail prices index.
This has wide reaching implications, not only for those public sector workers currently going through divorce who are unable to get cash equivalent transfer values (CETVs) or implement their pension sharing orders, but potentially, all final salary pension schemes.
The implementation of the change has been set at 3 months but this is by no means guaranteed and there is likely to be a backlog of cases. This affects all of the public sector schemes including the NHS, Fire, Police, Armed Forces, Teachers and the Local Government Pension Scheme.
It is possible to still get divorced legally but the financial settlement will not be completed without agreeing the pension settlement.
The long term implications of the move are greater. The CPI is a lower measure than RPI and so the knock on effect will be that inevitably CETVs will be lower leading to lower pension settlements.
In addition, the private sector is likely to follow suit although this will take longer as they will need to consult with their pension members.
See my comments on this in The Guardian.
For more information on this issue, please contact us on 0800 092 1229 or email advice@thedivorceifa.co.uk
Tags: Armed Forces, Cash Equivalent Transfer Value, CETV, Coalition Government, Divorce, Emergency Budget, Final Salary Pension, Financial Settlement, Fire, Local Government Pension Scheme, NHS, Pension Settlement, pension sharing order, Pension Sharing Orders, Pensions, Pensions and Divorce, Police, Public Sector Pensions, Teachers | Posted in Transfer values |
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Posted April 6th, 2010
Clients often worry about whether the cash equivalent transfer value (CETV) they have been quoted represents fair value. It should be noted that there can be two types of challenge to the fairness of the CETV but in many cases, such challenges will have a low chance of success.
1. Does the CETV itself represent fair value
It is important to understand that the CETV may seriously undervalue the total pension benefits due to a variety of reasons (for example, it may not cover all the pension benefits or it may have been discounted due to the state of the scheme’s funding). It is therefore, possible to argue that another (higher) figure should be used which represents a fairer valuation.
The CETV itself cannot be changed and so a higher proportion of pension benefits may be shared or other marital assets may be distributed more favourably.
To prove undervaluation it would be necessary to present expert actuarial opinion and to negotiate strongly on this point. This should not to be confused with..
2. Does the split of the CETV represent fair value
Where equality of outcome is desirable (i.e. both parties want the same income at an agreed retirement age) a 50:50 split of the pension assets may not represent fair value.
Here a split in favour of the wife may be greater than 50% to take account of a number of factors, but mainly that women have a greater life expectancy than men.
Of course, it should be noted that it is likely that the final benefits received will not represent the same values quoted due to the time lag between the valuation date and the valuation day.
If you would like to know whether your CETV represents fair value, please call or email me for a confidential chat.
Tags: 50:50 split, Cash Equivalent Transfer Value, CETV, CETVs, Discounted, Fair value, Fairer valuation, Pension, Pension Benefits, Scheme Funding, Split, Undervalue, Valuation Date, Valuation Day | Posted in Transfer values |
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Posted March 29th, 2010
Of all the things that need to be understood in the context of pensions and divorce I consider this one to be the biggest. There is a major difference between the Valuation Date and the Valuation Day and it is imperative you understand it.
In England, Wales and Northern Ireland, the date on which the transfer value request, Cash Equivalent Transfer Value (CETV) or Cash Equivalent of Benefit (CEB), is received by the trustees or scheme provider becomes the Valuation Date.
This becomes the value which all of the negotiations for your settlement will be based on. For example, if you are advised by your solicitors, having received an actuary’s report, that the pension needs to be split 60:40 this will be done on the basis of the value on the Valuation Date.
However, this is NOT the value which will be used when the final benefits are calculated. The actual value will be calculated at some point within the four month implementation period and this date becomes the Valuation Day. The implementation period starts on the Transfer Day, which is the day the pension sharing order takes effect, or, if later, on the day the pension scheme has the prescribed information needed to implement the pension sharing order.
The period of time between the Valuation Date and the Valuation Day can be considerable and a lot can change in a pension during this time, which can have knock on effect on the valuation and subsequently the benefits derived from it.
If you would like to understand more about how the Valuation Date and Valuation Day might affect you and your benefits, call or email me for a confidential chat.
phil@thedivorceifa.co.uk or 0800 092 1229
Tags: Cash Equivalent of Benefit, Cash Equivalent Transfer Value, CEB, CETV, Implementation Period, Negotiations, Pension, Scheme Provider, Settlement, Transfer Day, Trustees, Valuation, Valuation Date, Valuation Day | Posted in Transfer values |
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Posted March 19th, 2010
The prescribed method of valuing a pension for divorce purposes, whether the pension rights are to be subject to pension offsetting, pension attachment or pension sharing is the Cash Equivalent Transfer Value (CETV).
The CETV is the capital value of the pension rights as calculated by the scheme actuary or the pension provider. This valuation method is used where the pension is being accrued or is not yet in payment.
Where the pension is actually in payment, a different valuation basis needs to be used. This is the cash equivalent of benefit (CEB) calculation and it does give a capital value which can be shared, offset or earmarked. If you google the Martin-Dye v. Martin-Dye judgement you can find more information out on this valuation basis.
Neither calculation (CETV or CEB) is subject to standard actuarial methods and each defined benefit scheme will use a different valuation basis.
I cannot emphasis how important understanding this aspect of pensions and divorce is to maximising your settlement. Scrutinise the value to decide whether it represents fair value.
If you need further assistance with your CETV or CEB feel free to contact me for a confidential chat.
phil@thedivorceifa.co.uk or 0800 092 1229
Tags: Accrued, Actuarial Method, Asset, Attachment, Calculation, Cash Equivalent Transfer Value, CETV, Divorce, earmarking, Martin-Dye, offsetting, Pension, Pension in Payment, Pension Provider, Pension Rights, Scheme Actuary, Sharing, Valuation Method, Value | Posted in Transfer values |
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Posted November 23rd, 2009
It is often stated that Cash Equivalent Transfer Values (CETVS) are not an ideal method of calculating the true value of a defined benefit pension scheme on divorce. This is because they merely provide a snapshot of the value of a member’s pension benefit at a particular point in time.
What is most surprising is by how much these valuations can undervalue these benefits and therefore, how the unwary could find that they are losing out on potentially thousands of pounds.
I have highlighted below some examples taken from a survey done by the actuaries, Bradshaw Dixon Moore based on a sample of their own reports. The findings are startling and what is most surprising is the variations between the same schemes, particularly the Public Sector and Uniformed Services schemes.
|
Scheme
|
CETV
|
Actuarial
|
Difference
|
|
|
|
|
|
|
NHS
|
£120,000
|
£164,000
|
+28%
|
|
Local Government
|
£84,000
|
£138,000
|
+64%
|
|
Police
|
£283,000
|
£520,000
|
+84%
|
|
Army
|
£105,000
|
£394,000
|
+275%
|
|
Private Company
|
£380,000
|
£608,000
|
+60%
|
You can get the full details of their findings here. Pension-CETV-value-comparisons
I have been asked to comment recently on whether actuarial valuation reports are worthwhile and what value they add to financial negotiations. Many clients are naturally trying to reduce costs during divorce and see this as a potential cost saving.
My advice is that where defined benefits are involved, regardless of the scheme, an actuarial valuation is a necessity. By finding out the true value of the pension assets you will be in a much better position to negotiate a fairer settlement.
For information on any of the information provided here, please contact me at advice@thedivorceifa.co.uk
Tags: Actuarial Valuation Report, Army, Bradshaw Dixon Moore, Cash Equivalent Transfer Value, CETV, Defined Benefit, Divorce, Local Government, NHS, Pension, Pension on Divorce, Pension Scheme, Police, Public Sector, Settlement, Uniformed Services | Posted in Transfer values |
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Posted June 29th, 2009
When considering how to deal with pensions within a divorce settlement it is important to be aware of the many different factors which can affect the transfer value. Recent events in equity markets coupled with changes in regulations are proving that these values are rarely static. Clients, lawyers and advisers need to be vigilant when dealing with transfer values, particularly if the settlement takes time to agree.
Pensions can be separated into two main distinct types – money purchase or defined contribution or final salary or defined benefit. Depending on which type of pension you are dealing with has a major bearing on the issues surrounding transfer values.
Final Salary
Changes in the way in which actuaries calculate cash equivalent transfer values are having major impacts on settlements going forward. Since October 2008 the basis on which these values are calculated has switched from a broadly uniform one (under actuarial guidance note 11) to an individual scheme decision taken by their trustees.
So much so that values have been seen to double or halve depending on the circumstances and the schemes involved. Therefore, it is important to consider the following:
• Clients need to be aware of the potential fluctuations and their expectations managed.
• Up to date valuations are vital especially should the current valuation pre date October 2008.
• The cost of a new valuation might be a small price to pay to avoid future conflict.
Money Purchase
When dealing with money purchase pensions such as personal pensions the surrender value of the plan should be treated as the transfer value. This value can often be much less than the more readily quoted current value. Penalties, Market Value Adjustments and product charges on these contracts can affect these values and will change over time.
The key determinant of whether the fund value will move (up or down) is the amount of risk being taken within the fund. This will depend largely on how, where and what it is invested into. Therefore, it is just as important to understand what risks are being taken within these types of pensions as to worry about the overall amounts involved. It is not unusual to find within self invested pensions – high risk investments such as AIM shares or property.
My experience of risk tolerances using the FinaMetrica profiler (see www.finametrica.com) is that men’s risk tolerances are often much higher than women’s. Do your clients truly understand the amount of risk being taken within their (or their husband’s) pension?
Perhaps it might be sensible to find out their risk tolerances and consider switching investments to a less risky strategy for the duration of the divorce proceedings.
If you would like more information, please call us on 01204 663904 or contact us by email on advice@thedivorceifa.co.uk
Tags: Cash Equivalent Transfer Value, Divorce, Divorce Lawyers, Final Salary, FinaMetrica, GN11, Money Purchase, Pension, Personal Pension, Transfer values | Posted in Transfer values |
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