If you are getting a divorce in your 50 & 60’s, then just before your retirement, you need to be aware that final salary pensions offer great benefits until you want to share the pension on divorce.
Why is this a problem? A Cash Equivalent Transfer Value (the CETV) will be calculated by the pension’s trustees to establish a future cost of the benefits due to you as a member of the pension scheme. Since 1st October 2008 the trustees of the pension can decide how this is calculated. Previously there was a professional standard called GN11.The Pensions Regulator states on their website that the value should be prudent. The question is would a prudent valuation on an asset give you a fair value?
It should also be remembered that a CETV can ignore discretionary benefits and a member’s health.
Why would they do this? Many schemes have a financial deficit or black hole in their funding, because current investment returns are low and we are living longer. They can’t afford to be generous and also protect the remaining members of the pension. The result is a bias towards the divorcing member and not the divorcing spouse.
What a divorcing spouse would ideally want is a true value for the pension. This can be obtained using an independent actuary. Yes it will cost, possibly £1,000 or more; however the large values involved with final salary pension for long term members could result in the fair value being tens of thousands more.
Would you allow a property owned by your spouse to be prudently valued? No. Then why allow this to happen with the pension fund, which is often an asset of greater value than the house?
You will have a clearer picture of the true value of your spouse’s assets and, in some cases, an improved financial settlement in your favour. Just because the Courts accept the CETV doesn’t mean that you need to when negotiating what is fair for you.
These comments do not constitute personalised advice and are provided by Mr Neil Muir DipPFS; CFP Director of NTM Financial Services Ltd