Posted October 21st, 2010
I am often asked by clients what is the difference between equality of capital and equality of income calculations. And why is it important to ensure that before instructing an actuary each party understands what the calculations might mean for them.
To illustrate this issue I have provided explanations of each calculation below together with a worked example.
Equality of capital
This is the simplest approach to sharing pensions. It often mirrors what has happened elsewhere in deciding how to split the other marital assets. So, lets assume that a 50:50 division of capital is agreed.
Example 1 – Equality of Capital (50:50) Male aged 65 / Female age 60
Before
Male CETV – £200,000
Female CETV – £0
After
Male CETV – £100,000
Female CETV – £100,000
Male – annuity income – £6,535 per annum*
Female – annuity income – £5,687 per annum*
(Source: The Exchange – October 2010)
*Annuity purchased is on a single life basis, 5 year guarantee with no escalation.
Result
So we have equality of capital but not equality of outcome / income.
Equality of income – same clients
This calculation attempts to rectify the outcome detailed above. It takes into account the client’s ages, health (if relevant) but most importantly the difference in sex! The key point here is that it costs more pension cash equivalent transfer value (cetv) to provide a woman with the same amount of income than it does a man.
Example 2 – Equality of Income
Before
Male CETV – £200,000
Female CETV – £0
Share needed
Male CETV – £93,050
Female CETV – £106,950
Annuity income now
Male annuity income – £6,080 per annum*
Female annuity income – £6,082 per annum*
(Source: The Exchange – October 2010)
*Annuity purchased is on a single life basis, 5 year guarantee with no escalation.
Result
So by sharing pension 46.53%:53.48% the client’s have equality of income.
This is a very simplistic case but I think it illustrates the issue nicely. Where the pensions involved are final salary or defined benefit, the client is in ill health or there are major differences in their ages (i.e. 10 years plus) then these issues complicate the calculations and it is necessary to get professional actuarial advice.
Should you wish to discuss equality of capital versus equality of income, please contact us here.
Tags: 5 year guarantee, 50:50, Actuary, Annuity, Calculation, Cash Equivalent Transfer Value, CETV, Defined Benefit, Division of Capital, Equality of Capital, Equality of Income, Equality of Outcome, Final Salary, Ill Health, Marital Assets, no escalation, Pension, Pension Sharing, Sharing Pension, Sharing Pensions, Single Life Basis | Posted in Pension Sharing |
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Posted October 9th, 2010
The Public Sector Pension schemes – (NHS, Police, Civil Service, Local Government, Teachers, Armed Forces) are changing the way that they increase pensions in payment and revalue pensions in deferment from being linked to the Retail Price Index (RPI) to the Consumer Price Index (CPI).
RPI and CPI are measures of UK domestic inflation which are calculated by collecting a sample of prices for a selection of goods and services.
The major difference between the two measures is that RPI includes mortgage interest costs but CPI does not. Historically, this has meant that CPI has increased at a lower rate than RPI and it is therefore, expected to do so in the future.
In pension on divorce cases this change will potentially have two main knock on effects.
- It will have a negative impact on cash equivalent transfer values – the actuarial experts I have spoken with estimate that CETVs will be potentially up to 20% to 25% lower in some situations.
- It will mean that in retirement the amount of revaluation that each parties’ pension will receive will be lower.
If you would like more information on how these changes might affect you, please get in touch.
Tags: Armed Foreces, Cash Equivalent Transfer Value, CETV, CETVs, Civil Service, Consumer Price Index, Consumer Prices, CPI, Divorce, inflation, Local Government, NHS, Pension, Pension on Divorce, Pensions, pensions in deferment, pensions in payment, Pensions on divorce, Police, Public Sector Pension Schemes, Retail Prices, Retail Prices Index, revalue pensions, RPI, Teachers | Posted in Pensions & divorce |
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Posted October 4th, 2010
Whilst the NHS call centre and website are saying it could be up to next April before the new cash equivalent transfer values (CETVs) / Cash Equivalent Of Benefit calculations (CTVs) commence again, I understand that the new CPI factors are now starting to become available for the Public Sector Schemes.
The Fire Service and NHS pension scheme have confirmed receipt and they will be testing their systems over the next two weeks. The other schemes – Local Government Pension Scheme, Police Pension Scheme, Armed Forces- are expected over the coming weeks.
It is hoped that the end of this embargo (see here) will be soon and we can return to normal with requesting public sector pension transfer values.
If this is something that is currently affecting you, please feel free to contact us.
Tags: Armed Forces, Cash Equivalent of Benefit, Cash Equivalent Transfer Value, CETV, CETVs, CPI, CPI Factors, CTV, CTVs, Embargo, Fire Service, Local Government, Local Government Pension Scheme, NHS Pension, NHS Pension Scheme, Pension Transfer Values, Police Pension Scheme, Public Sector, Public Sector Pension Schemes | Posted in Cash Equivalent Transfer Values |
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Posted September 24th, 2010
The site has just had a makeover and we would welcome your comments. Let us know what you think and whether there are any areas you feel can be improved. Comments to advice@thedivorceifa.co.uk
We are seeing an increase of instructions month on month as issues such as the CETV embargo in the Public Sector take hold (see our previous blog on this).
We offer a free initial consultation and are happy to provide you with initial comment on a free, no obligation basis. So why not try us out. You can contact us for free on 0800 092 1229 or by email on advice@thedivorceifa.co.uk
Recent examples of our work include:
The quadrupling of the amount of state pension being paid to my client.
- Successfully arguing that a cash equivalent transfer value should be £140,000 and not the stated £90,000.
- Advising on 10 pension schemes within a divorce and reducing the costs of the actuary by £500 and implementation of the pension sharing orders by over £4,000.
So why settle for less?
0800 092 1229 or advice@thedivorceifa.co.uk
Tags: Cash Equivalent Transfer Value, CETV, CETV embargo, Divorce, Free, Free Initial Consultation, Initial Consultation, No obligation, Pension, Pension Sharing, pension sharing order, Pension Sharing Orders, Pensions, Pensions and Divorce, Public Sector, State Pension | Posted in Pensions & divorce |
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Posted September 6th, 2010
Pension sharing is a confusing and complicated part of any divorce settlement and there are many issues to be aware of before proceeding. Some examples include:
- The fairness of a cash equivalent transfer values (CETV).
- Internal transfer or external transfer?
- Moving target syndrome?
- Default options.
Therefore, it was a refreshing change to be contacted by a client this week who had received notification from her pension provider (Prudential) that she HAD to take financial advice before they would agree to accept the pension sharing order.
To avoid the pitfalls above it is important to take financial advice from a competent adviser, preferably one who is a Resolution Accredited Independent Financial Adviser (See link here). You may also wish to employ the services of an actuary that advises on pension and divorce cases.
If this is you and you are looking for financial advice on a pension sharing matter or if you require further information, please contact me on 0800 092 1229 or email advice@thedivorceifa.co.uk
Tags: Actuary, Cash Equivalent Transfer Value, CETV, Competent Adviser, Default Option, Default Options, Divorce Settlement, external transfer, Financial Advice, internal transfer, Moving Target Syndrome, Pension and divorce, Pension Provider, Pension Sharing, Pension Sharing Matter, pension sharing order, Prudential, Receiving scheme, Resolution, Resolution Accredited, Resolution Accredited Independent Financial Adviser | Posted in Pension Sharing |
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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 July 28th, 2010
I am often asked what forms are needed to enable a cash equivalent transfer value (CETV) to be calculated by the NHS Pensions Agency.
To enable the NHS Pension Agency to calculate the CETV they require pay and membership details from you and your employer. NHS Pensions rely on NHS employers to provide details of pensionable pay and membership of the NHS Scheme.
The forms required depend upon whether you are a contributing member or not.
Contributing member (or leaver within the last 12 months)
Form PD2 needs completing by your employer – a separate one is required for each NHS employment. Form PD1 needs completing by you.
Once both are completed, you need to send it to NHS Pensions, Hesketh House, 200-220 Broadway, Fleetwood, Lancashire, FY7 8LG.
Non contributing member
Form PD1 only needs to be completed and returned to the above address.
Timescales
They aim to provide the CETV within 6 weeks. Note that occupational schemes have 3 months to provide the CETV. You can pay extra to receive the CETV more quickly.
To avoid delays it is important that the forms are completed accurately. I am happy to provide further information on how the NHS deals with pensions on divorce.
If you require any further assistance, please contact us on 0800 092 1229 or email advice@thedivorceifa.co.uk
Tags: Cash Equivalent Transfer Value, CETV, Divorce, NHS, NHS Pension, NHS Pensions Agency, PD1, PD2, Pension on Divorce | Posted in NHS Pension Scheme |
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