Posted March 13th, 2013
Technically speaking the cash equivalent transfer value (CETV) represents the expected cost of providing the member’s benefits within the scheme.
In divorce settlements, thought needs to be given as to whether the CETV is the most appropriate method of valuing the overall pension benefits. Consideration needs to be given as to whether the CETV accurately reflects the benefits on offer and if certain benefits are not counted within the CETV, what should be done about it.
In the case of money purchase benefits, this is generally straightforward – it is the accumulated contributions made by and on behalf of the member together with investment returns. (There can be exceptions).
But with defined benefits (like final salary), the CETV is a value determined on actuarial principles, which requires assumptions to be made about the future course of events affecting the scheme and the member’s benefits.
So when negotiating settlements it should be noted that it is not that the CETV has been inaccurately valued but that it may not be the most suitable valuation to use for divorce purposes.
Look at the definition again and note that it states “the expected cost of providing the member’s benefits” The CETV may therefore be valuing the member’s benefits but not the spouse’s. (Spouse’s pensions can often be very valuable). Trustees will also provide a CETV based on the normal retirement date of the scheme, even where it is likely that the member will retire early.
Of course, agreeing on a higher valuation does not mean that there are extra funds available as the CETV is the only value the scheme will place on the pension. However, when completing a pension sharing order it is possible to take a higher pension share (based on the higher valuation agreed) to compensate.
So what does this all cost and surely every actuary/pension expert would take all this in to account? Firstly, for no more than a few hundred pounds a second opinion valuation can be obtained. Secondly, unfortunately not and many reports I see only work of CETVs thus potentially undervaluing the pension assets at the most crucial stage!
My approach is to work hand in hand with an actuary to ensure that you get the best result. It should be noted that on several occasions we have managed to increase the valuation considerably (doubled it one case) resulting in a significant pension sharing increase for our client.
So before proceeding any further why not allow me to review the pension CETVs (for free) and see if we can improve the settlement today.
Tags: Cash Equivalent Transfer Value, CETV, CETVs, Divorce, Final Salary, Money Purchase, Pension Sharing | Posted in Pension Sharing |
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Posted August 16th, 2012
I was recently contacted by a client who had not implemented their Pension Sharing Order since 2003.
Not only was this a breach of the original order, there were a number of consequences that had occurred since the order was made. These were:
- The Cash Equivalent (CE) was recalculated at £213000 rather than the original £280000.
- Therefore my clients share of the CE was considerably lower, by £67000.
- The reason for this was that her husband had drawn benefits and as a consequence of this she was unable to take any lump sum from the pension.
- As the order was over 7 years old she had no recourse to go back to her solicitor for redress.
Therefore if you have a pension sharing order and are looking to implement it, my advice is to do so immediately. In the case of my client she has lost out on £67000 of CE and 25% pension commencement lump sum of the higher share figure £280000 / 50% (c.£.35,000)
Don’t let this happen to you please get in touch today!
Tags: Cash Equivalent Transfer Value, CE, CETV, CETVs, Divorce, Implementation, Implementation Period, Pension, Pension Sharing, pension sharing order | Posted in Divorce, Financial Advice, Investment Advice, Pension Sharing, Pension Sharing Orde, Pension Sharing Order, Pensions & divorce |
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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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