Posted March 30th, 2012
One of the key distinctions to understand is the difference between a cash equivalent (CE) and other realisable assets which can be turned into cash. For example; the matrimonial home. The difference here is that these assets are capable of being turned into cash, whereas a pension scheme usually cannot, and has to be treated as either a present or future income stream.
Case law deals with this and best practice is around disaggregation of the pension assets so that these can be apportioned via the means of a pension sharing order. In big money cases this is relatively straightforward when looking to create equality as there are surplus assets and enough money to go round.
So when dealing with the asset schedules, in my opinion, the pension sits within them, rather than representing income. In fact, many courts use this balance sheet approach.
However, where the major matrimonial assets are the house and the pension only, disaggregation can often provide an unsatisfactory answer. For example, sharing the pension and sharing the house equally may not provide the solution that either party wishes to achieve, for example, the wife may not wish to relinquish the whole of the matrimonial home a she wishes to retain it for her and her children.
Often in such cases a mesher order, whereby the husband would receive an interest in the former matrimonial home but deferred until a future date, for example until the children’s 18th birthday or the death of a former partner were used, but we see less and less of these over time.
This leads to the situation where offsetting of the pension assets occurs and there is no set formula of how to properly measure how to offset. On many occasions, the court will make an ad hoc assessment on what they believe is broadly fair.
So the lesson here is, that there is no agreed method of offsetting, in fact at a recent seminar I attended, the actuary confirmed that in the last year he had seen eight different methods used to calculate offsetting. I will look at these in a future blog, however, it goes to show how much care needs to be taken when looking at this matter and agreement on which basis the calculation should be done on.
If this is an issue that affects you please call in confidence on 0800 0921229 or email me at phil@thedivorceifa.co.uk
Tags: Cash Equivalent, CE, offsetting | Posted in Offsetting |
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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 August 20th, 2009
Since 2000, a pension sharing order has been available as an option on divorce. With the ability to achieve a clean break this should be the option of choice for most divorce cases where the pension benefits are significant (and earmarking / offsetting have been discounted).
A lot of focus is rightly given to ensuring that an equitable pension share is achieved and here the use of a suitable actuary is advisable. However, in my opinion, less time is given to the options available once the pension share has been calculated and many clients approach this stage with unnecessary fear and trepidation.
Options
With a pension share there are two options – an internal or external transfer – and either option can have its merits depending upon circumstances.
With an internal transfer the pension does not physically move from the existing scheme but a debit and credit is created to satisfy the pension share. Most importantly, the internal scheme benefits can differ significantly. For example, some final salary schemes offer shadow membership whereby the same defined benefit rights generously apply to the new member whilst others provide poorer value money purchase equivalents.
With an external transfer the fund value of the pension share is physically transferred to a new arrangement in the individual’s name, with the associated issues of understanding the investment and annuity risks involved but having the benefit of control.
Considerations
Here are a few suggested considerations which will assist in deciding which type of transfer is appropriate.
* How flexible is retirement and who decides when retirement can start.
* How much pension income will be payable at retirement and how secure is it.
* How much risk is involved / could my pension fall in value.
* What are the death benefit arrangements and who will ultimately benefit.
* Can future pension contributions be paid.
* What are the charges involved.
If you would like more information on how we deal with pension sharing, please call us on 01204 663904 or contact us by email on advice@thedivorceifa.co.uk
Tags: Actuary, clean break, death benefit, Divorce, earmarking, external transfer, Final Salary, internal transfer, offsetting, Pension, pension share, pension sharing order | Posted in Pension Sharing |
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