Apparently some solicitors, and in some negotiations , the value of pensions is considered at a half or two thirds of its CETV.
This is not always the case, although I would recommend arguing the case for this.
The reason for this is because it is not ready cash, nor can it be easily converted to cash, nor can it be used as an asset to borrow against.
For example, X is arguing that I have a pension worth £84,000 and using that against her claim for the FMH. The reality is that I cannot touch the money for another 20 years, and even then I can only get half out as cash, and will have to buy an annuity with the rest.
As you can see it is slightly less useful than real cash. She could ( and probably will) sell the house as soon as she gets her dainty little mitts on it.
I like agardine's answer, but there is one point missing: tax relief.
For a tax payer, £100 in a pension is taken from before-tax income, costing him either £60 or £80 depending whether he is a higher rate payer or not. This is even better as you get closer to retirement as you can take £25 of that £100 straight out again tax-free. On the other hand, £75 forced into an annuity is worth less than £75 in the hand at retirement.
As an actuary dealing with issues very much like this, I can say that 50% of the CETV value is a very good yardstick.
An 'exact' value depends very much on individual circumstances, such as current age and tax bracket and how much the other assets are worth (£30,000 in debt, you need money now so you'll accept a rate of less than 50% to get cash: £30,000 in the bank, you need a higher rate to tempt you).
All this does is give you some idea what is 'fair'. How you use it depends on your own circumstances.
Of course, in court all bets may be off.
For me, there is some £15,000 difference in CETV between myself and my wife, and I shall be arguing to transfer half of it; as I want cassh now, the £7,500 difference is worth only £2,500 if she wants me to trade extra pension for me against cash for her.
Hope this helps.
Was interested in your answer regarding the 50% of CETV as a yardstick.
Am due at FDR shortly and my pension has CETV at £37,000
My sol has suggested that wife may aquire a 50% share of this due to the length of the marriage. He has therefore calculated an offer to her of £10,000 for her interest in it, advising that this is at a discounted rate as she is receiving it now rather than in 20 years time.
If I have understood correctly what you said, then my pension is only worth about £18,000 now in terms of cash and therefore if she was to achieve a 50% share of that then that would equate to £9,000?
We are hoping that she accepts this offer and it now seems confirmed that we are in fact on the right lines in terms of figures calculated?
In broad terms, you can allow 2-3% a year for the cost of giving up consumption until retirement.
So, for you £37,000 means £18,500 each. £18,500 is £14,800 of after-tax income.
Allowing 3% a year for 20yrs for giving up this £14,800 in cash now reduces it by around 45%, to £8,200 say. Allowing 2% gives £10,000.
The offer does not look unreasonable, but you could try offering less, say £9,000 with the above example figures.
But, health warning, the above figures are indications only and there is no such thing is a right or exact answer.
Hope this helps.
Yes that does help, although just realised that the pension cannot be taken until 28 years time not 20 years as I posted, so that would make my offer of £10,000 seem very reasonable on the basis of figures you have quoted.
I totally understand that these are just indications and are not set in stone, however it does confirm that my sols suggestion was reasonable in the first instance.
Like I said, I would prefer pension sharing, as the "pot" has reduced by £10k now due to a lower offer being accepted on the FMH.
Now at the FDR I feel a little more confident that my offer made for the pension and also the split of assets as a whole is not as wide of the mark as her initial and subsequent counter offer is.