Posted July 12th, 2010
As a Resolution Accredited Independent Financial Adviser (IFA) I am often asked to provide a summary of how we can work with clients through the Collaborative Law process. Below is taken from a flyer which is provided to the lawyers at the Greater Manchester POD.
HOW THE IFA WILL WORK WITH YOU AND YOUR SOLICITOR:
IFAs will be accredited by Resolution to work in the collaborative area, having undertaken training on the technical and cultural aspects involved, and passed an examination on the subject.
The IFA acts as a ‘financial neutral’ – rather than representing one party, their role is to assist all parties in highlighting issues and providing information that enables the collaborative process to move quickly and smoothly.
In addition to their specialist technical knowledge, IFAs can outline options to parties and comment on risk factors (eg in terms of pension options) which solicitors are unable to do as they are not authorised to give financial advice.
IFA’s can attend a first meeting with the Solicitors present, so as to display to the parties how they may add value to the process. At your discretion, IFAs can subsequently meet you without your solicitor being present, so as to control total costs.
EXAMPLES OF WHERE THE IFA IS ABLE TO HELP:
• Tax efficiency and mitigation if assets or investments are being sold as part of the agreement (eg ISAs, Capital Gains Tax issues).
• Pension-sharing issues under occupational final salary schemes, for both the scheme member and the ex-spouse.
• Issues surrounding individual pensions, including retirement options.
• The cost of replacing items under an employee benefits package for the ex-spouse (eg life cover, critical illness cover, private medical insurance).
• Mortgage availability and costings in relation to the marital home.
• Assessment of endowment policies and the options going forward.
• General financial education
• Budgeting exercises and lifetime cashflow projections to determine whether the agreed settlement will be sufficient to support the financial requirements of each party over time.
If you require any further assistance, please contact us on 0800 092 1229 or email advice@thedivorceifa.co.uk
Tags: Budgeting exercises, Capital Gains Tax, Collaborative Law, critical illness cover, Employee benefits, endowment policies, Ex Spouse, Final Salary, financial education, Financial Neutral, Greater Manchester POD, IFA, ISAs, life cover, lifetime cashflow projection, marital home, Member, Mortgage, Occupational Final Salary, Pension, Pension Sharing, POD, private medical insurance, Resolution Accredited, Resolution Accredited IFA, Settlement, Solicitor, Tax efficiency | Posted in Financial Advice |
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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 October 23rd, 2009
I am often asked why earmarking is not used more often. Since 1996 such settlements have been available but not widely used.
My own view is that in certain circumstances an earmarking order can have its merits and if drafted correctly, with the right protections placed around it, can ultimately meet a client’s needs.
However, there are a number of key limitations which need to be fully understood. It will pay to review your options in full and ensure that if earmarking is deemed to be appropriate, you have discounted the other options of pension sharing and pension offsetting, and vice versa.
I have set out below some of the main advantages and disadvantages of this option.
Advantages
• It allows for both the tax free cash benefit as well as the pension income benefit to be earmarked.
• Death in service benefits can also be earmarked.
• It is possible to use an earmarking order in circumstances of judicial separation and nullity not just on divorce.
Disadvantages
• It cuts across the clean break principle as the pension holder can decide when to draw the pension and lump sum benefits, perhaps delaying this beyond their normal retirement.
• The benefits payable to the ex-spouse cease when the pension holder dies.
• Often, the ex spouse has no control over how the funds are invested (and therefore this could be in higher risk assets).
• The member could (out of spite) opt out of the original scheme and start a new post divorce arrangement potentially reducing the earmarked benefit.
• The automatic termination of the court order on remarriage of the ex spouse is a clear incentive to continue to cohabit.
• The entire pension is taxed in the hands of the pension holder and earmarked payments are made after tax has been paid. Often this will not be tax-efficient for the ex-spouse.
Have you fully reviewed your options on divorce? How in control do you feel on your decision-making? Should you consider earmarking and how much should be earmarked?
If you wish to discuss any of the issues here, please call me in confidence on 01204 663904.
Tags: clean break, Cohabit, Court Order, Death in Service, Divorce, Earmarked, earmarking, Ex Spouse, Judicial separation, Normal Retirement, Nullity, Pension, Pension Attachment, Pension income, Pension offsetting, Pension Sharing, Tax Free Cash | Posted in Pension Attachment |
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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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Posted July 9th, 2009
I have attached below a very useful checklist for lawyers to use when working with clients with Public Sector pensions.
Public Sector Scheme Checklist
This checklist has been produced by Bradshaw Dixon Moore Limited and they have kindly given me permission to post it here. You can access further information on their actuarial services below:
www.bradshawdixonmoore.com
In addition, they also provide useful information and comment on divorce matters at:
www.ancillaryactuary.co.uk
If you require further information on The Divorce IFA, please call us on 01204 663904 or by email advice@thedivorceifa.co.uk
Tags: Actuary, Bradshaw Dixon Moore, Final Salary, Pension, Public Sector | Posted in Actuary |
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Posted June 30th, 2009
I am often asked why you should use the services of an IFA during divorce work.
- What does an IFA do?
- What services do they offer?
- What benefit will dealing with an IFA bring me?
I have set out four main areas where I can add real value to your circumstances.
Pension reports
During the process of divorce, a report may be required by the court to understand the values of the pension assets and how these should be sensibly divided amongst the parties. Pensions are unnecessarily complicated and often such reports are difficult to understand and may at first appear daunting.
I will summarise these reports for you, demystify the jargon and provide a clear overview and direction on how to proceed based on your individual circumstances.
Second opinions
If you are confused or concerned about any aspect of your finances whilst working with another financial adviser or professional, I am happy to provide a second opinion where necessary to clarify any issues.
Pension transfers
When a settlement is reached it is often necessary to move the pension to a new arrangement. I am able to assist you by advising on the most appropriate type of pension sourced from the whole of the market place.
Financial Planning
It is important to reappraise your finances once your divorce has been finalised and rediscover your values, goals and objectives and what you truly wish to achieve from life. In fact, this can often be first time you are dealing with finances. It needn’t be daunting.
Financial planning can set the framework for you to achieve these goals by providing a sound overall financial strategy which can adapt and change over time as you and your circumstances change.
If you require further information on The Divorce IFA, our services and charging structure, please visit our website www.TheDivorceIFA.co.uk or alternatively, please call us on 01204 663904 or by email on advice@thedivorceifa.co.uk
Tags: Add new tag, Divorce, Divorce Lawyers, Financial Planning, IFA, Pension, Transfer values | Posted in Financial Advice |
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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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