How undervalued can CETVs really be?
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
