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What are we each entitled to in our divorce settlement?

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DIY CETV estimate for final salary pension

  • maggie
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19 Jan 08 #11133 by maggie
Topic started by maggie
"For defined benefit schemes such as final salary pensions the scheme must calculate the value of the pension to determine the maximum tax free cash. The calculation used by the HMRC is a 20:1 value for converting a defined benefit scheme to cash. Therefore assuming a pension accrued of £15,000 per annum, this would represent a cash value of £300,000"
Could you use this HMRC formula for sharing/offsetting a pension based on salary?

  • maggie
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19 Jan 08 #11137 by maggie
Reply from maggie
Only thinking aloud on this- but in my case for our deferred defined benefit pension the HMRC 1:20 formula gives a CETV about £150,000 higher than the one quoted for pension sharing purposes by the pension scheme.
If this formula is used by HMRC/the Government to value final salary pensions why isn't it used for sharing final salary pensions on divorce?

  • Nigel@BDM
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  • Premium Member
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21 Jan 08 #11361 by Nigel@BDM
Reply from Nigel@BDM
I'm always wary when HMRC simplify things, so I did some actuarial numbers on this (occupational hazard).

For a good pension (inflation-linked, 50% spouse's pension on death) the ratio if a male retires at 65 is closer to 25:1, if he retired at 60 its 27:1, and if he was lucky enough to retire at 50 it would be 32:1.

The ratio for a female would be higher as they live longer, but it would be lower if the pension only increased at a low rate in payment, or if the retiree was in ill-health.

That's the value at retirement, if you're not there yet the ratios are lower as it will be some time before you get your money. And £1 now is worth less than £1 in the future.

In general pensions are probably worth enough to do a bit more (and a bit more than just geting a CETV) to get them right.

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