The Divorce IFA

Pensions on Divorce: Retail Prices v Consumer Prices

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.

1. 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.
2. 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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Pensions and Divorce – Public Sector Pensions – where is my CETV?

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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Accessing your pension credit after divorce

Posted February 8th, 2010

In many occupational schemes (especially the statutory ones – e.g. Police, Armed Forces) there has been a disparity between the normal retirement age of the member and that given to a pension credit member (the ex spouse).   For example, the member can retire from the pension scheme at age 52 but the ex spouse cannot retire until age 60.

In addition, where the pension is in payment, there will be an immediate reduction of benefit for the member but the ex spouse’s pension will not kick in until age 60 (which could be many years away).

This issue has been neatly termed as “income gap syndrome” and it has been found not to go  against the anti discrimination provisions of European Law.

Of course, this assumes that the ex spouse decides upon an internal transfer as the means to facilitate the pension share.  There may be many reasons why the other option (an external transfer) is appropriate, but there will many situations where the only choice available is an internal transfer.

Regulations which came into force in April 2009 made provision for a partial solution to this issue which some of the statutory schemes are now starting to implement.  The NHS scheme will now permit pension credit members to draw benefits after age 50 (or 55 from 6 April 2010) whilst an Armed Forces (2005) pension credit member can draw benefits at age 55.  It should be noted that actuarial reductions will apply for early payment.

From a financial planning point of view it is wise to review the drawing of a pension credit benefit in line with your overall goals and objectives to ensure that any reduction is understood and budgeted for.

For more information on this please contact me on 0800 092 1229 or contact me by email, phil@thedivorceifa.co.uk

Tags: Actuarial Reductions, Armed Forces, Divorce, Early Payment, Ex Spouse, Financial Planning, Income Gap Syndrome, internal transfer, NHS Scheme, Normal Retirement Age, Occupational Scheme, Pension Credit, Pension Credit Member, Pension Scheme, pension share, Police, Spouse, Statutory Scheme | Posted in Pension Credit |
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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.

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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