Trying to understand pension figures during a divorce can feel overwhelming, especially when you are already dealing with decisions about property, savings and your future financial security.
A Cash Equivalent Transfer Value (CETV) is one of the main pension figures you are likely to see during financial disclosure. It places a capital value on pension benefits at a particular point in time, but it does not always tell you what those benefits are really worth in retirement.
This matters most with defined benefit, final salary, NHS and other public sector pensions, where the future income and guarantees attached to the scheme can be just as important as the headline figure.
If you’re not sure whether your CETV gives you enough information to make a fair decision, speak to The Divorce IFA for clear, specialist guidance on what the figure means and whether further pension analysis may be needed.
Call 0800 092 1229 or complete the form below to arrange a confidential, free consultation by phone or online.
What is a CETV?
A Cash Equivalent Transfer Value places a capital value on pension benefits.
For a straightforward defined contribution pension, the figure will often be closely related to the current value of the pension fund.
Defined benefit pensions work differently. Rather than simply holding a pot of money, they promise retirement benefits under the rules of the scheme. A pension cash equivalent transfer value is calculated to place a capital value on those future benefits.
A CETV does not necessarily mean that amount of money is sitting in an account, and it does not directly tell you how much retirement income the pension could provide.
Why two pensions with the same CETV can be very different
This is where CETVs can become confusing.
Imagine two pensions both showing a CETV of £200,000.
One could be a defined contribution pension holding £200,000 of investments. Its future value and the income it provides will depend on investment performance, charges and how the pension is eventually used.
The other could be a defined benefit pension with a CETV of £200,000 that provides a guaranteed income for life under the rules of the scheme.
The headline values look the same, but the pensions may provide very different benefits in retirement.
Even two defined benefit pensions with the same CETV can provide quite different levels of income, because schemes calculate their CETVs in different ways.
This is why a CETV should be treated as a starting point rather than a complete answer during pension sharing.
How is a CETV used in divorce?
The CETV in divorce helps build a picture of pension wealth alongside property, savings, investments and other assets.
It can be particularly relevant when considering pension sharing on divorce or divorce pension offsetting.
With pension sharing, a percentage of one person’s pension rights is allocated to their former spouse or civil partner.
The court order is expressed as a percentage rather than a fixed cash amount. This matters because pension values can change between the figures used during negotiations and the value used when the pension share is implemented.
The pension sharing order calculation can therefore produce a different monetary outcome from the figure someone may have expected earlier in the divorce.
With offsetting, one person keeps more of their pension while the other receives more of another asset, such as the family home.
A pension with a CETV of £300,000 is not automatically financially equivalent to £300,000 of property or cash. A pension may provide future taxable retirement income, while a property provides housing or capital that can be accessed in a very different way.
Does a CETV show the true value of a pension?
Not always.
For a straightforward defined contribution pension, the CETV may give you much of the information needed.
Defined benefit, final salary and public sector pensions can need closer analysis because their value is linked to the benefits they provide. These may include guaranteed retirement income, inflation-linked increases, survivor benefits, different retirement ages or other scheme-specific terms.
This does not mean the CETV is incorrect. It means the figure may need to be considered alongside the pension benefits themselves.
That distinction can become particularly important with divorce pension offsetting, where one person may be giving up future pension income in return for a larger share of another asset.
It is also why sharing pensions so that both people end up with the same CETV does not necessarily give them the same retirement income.
Why can CETV pension figures change?
A CETV is calculated at a particular point in time, so the figure can change during a divorce.
Investment movements, changes in interest rates and other market conditions, getting older, additional time worked in the scheme, changes in pensionable salary and changes to scheme calculation factors can all affect the value.
This means the CETV figure used during early discussions may not be the same figure that applies later in the process.
Understanding when the valuation was produced and what it is being used for is just as important as looking at the number itself.
What about a CETV for an NHS pension?
A CETV for an NHS pension deserves separate attention because the NHS Pension Scheme is a defined benefit public sector arrangement.
An NHS pension does not work like a personal investment pot. Benefits are calculated under the rules of the scheme, and some members may have benefits across the 1995, 2008 and 2015 arrangements. The McCloud remedy also affects benefits built up between April 2015 and March 2022.
This can make NHS pension and divorce cases harder to assess using the CETV alone.
The figure is still useful, but retirement age, inflation protection, future income and other scheme benefits may also need to be understood before the pension is compared with property or other assets.
Where pension sharing is being considered, an NHS pension sharing order also needs to be assessed in the context of the scheme’s own rules and the retirement benefits that may result for each person.
When might you need further pension analysis?
Not every divorce involving pensions requires specialist modelling.
If both people have straightforward defined contribution pensions, the information supplied by the pension schemes may be enough.
Further analysis is more likely to help where defined benefit, final salary or public sector pensions are involved, several pensions need to be compared, pension offsetting is being considered or there is a significant difference in retirement provision between the two people.
In these cases, a Pension on Divorce Expert may be asked to carry out more detailed analysis.
A PODE can compare pension benefits, model pension sharing percentages and look at the likely retirement income produced by different options.
How The Divorce IFA can help
Receiving a CETV gives you a figure. The more important question is what that figure means for your future.
We can help you understand the pension information you have received, identify when further analysis may be useful and explain how pension sharing or offsetting could affect your longer-term financial position.
Phil O’Connor is a Chartered Financial Planner with more than 20 years’ experience in financial planning. He has been Resolution accredited since 2007, one of the earliest to hold the accreditation, and helps write the accreditation and reaccreditation exams for financial professionals working in divorce.
That depth of experience means you can be confident your pension figures will be assessed by someone who understands the full picture, not just the headline CETV.
Frequently asked questions about CETV in divorce
Yes. A CETV is calculated at a particular point in time and may change before the financial settlement or Pension Sharing Order is implemented.
Not always. Straightforward defined contribution pensions may not need the same level of analysis as defined benefit, final salary, NHS or other public sector pensions.
Not necessarily. With a defined contribution pension, the CETV may be closely related to the underlying fund value. With a defined benefit pension, the CETV is a capital value placed on promised pension benefits rather than a pot of money sitting in an investment account.
Speak to The Divorce IFA about your CETV
It is completely understandable to feel uncertain when pension figures start appearing during divorce. A CETV can look straightforward on paper, but the decision you make around it can affect your financial security for many years.
You do not need to make that decision based on a number you do not fully understand.
Call 0800 092 1229 or complete the form below to arrange a confidential, free consultation, by phone or online, with The Divorce IFA team.