ACTUARY REPORT

I am not an actuary but have to confess that I am a director of Bradshaw Dixon & Moore Ltd, the firm that Maggie referred to in her earlier post. The firm that hosts our website (which claims to be “The world’s No.1 web host”) has suffered major technical problems with one of its servers, which is why you and many of our clients have been unable to access parts of our web site over the last day or so. Anyway, that is enough of the excuses.

I shall try to answer the points that you raise in the hope that it might help.

You refer to a CETV, which stands for Cash Equivalent Transfer Value. This is the normal valuation that lawyers and a court will start with, because it is available from the pension scheme. However, when as in your case, the pension is in payment the valuation required is a CEB, which stands for Cash Equivalent Benefit. Effectively the Court is endeavouring to place a cash value on your pension, which is why an actuarial report has been requested. The actuary will be asked to calculate the value of your pension income in terms of a cash lump sum.

JLGsDad is correct and potentially very helpful to you in saying that the pension is worth less (to you) because you would be expected to die earlier than someone in receipt of the same pension who did not retire early due to ill health (sorry to be so morbid). To make place a fair and reasonable value on your pension, in my opinion it is essential that the valuation include an assessment of your heath and the effect this may have on your future life expectancy. This means that the actuary making the valuation must have access to appropriate expertise and not all will have.

To put it rather crudely and bluntly, the value of your pension will be lower the more impaired your life expectancy is. From a purely financial perspective, your advisors should be able to use this to ensure that any settlement is as fair for you as it can be. An assessment of your life expectancy does require proper consideration and it would be incorrect to link disability directly with a lower life expectancy. For example, if I were to lose a limb because of an injury I would become relatively disabled but my life expectancy would be unaltered.

Had you been able to download the forms from our website you would have seen the one-page questionnaire we use for making simple initial assessments of life expectancy from a medical perspective. In my opinion, it may be necessary to make a more specific assessment in your case and this would involve obtaining medical reports. These would typically take the form of a report from your own GP and if necessary a physical examination (probably also by your GP). These reports can be expensive and I would suggest that the expense could be disproportionate in your case. Your GP could charge around £80 to provide a report from your medical records and an examination could cost a further £100. However, there are ways to reduce these costs and the firm making your assessment should be able to offer you advice and assistance in this regard.

The assessment itself will form part of the actuarial valuation of your pension. The valuation itself will be quite expensive and the additional cost of the life expectancy assessment (excluding the cost of any medical reports) should be relatively small.

Our phone number and contact email addresses are on our website and if you would care to contact us, I would be happy to arrange for our forms to be emailed to you.

I am happy to assist you where I can by answering questions through this forum. Some of these matters are quite personal, so I am also happy to assist with information if you email me using one of the addresses on our website. If you do contact me direct, we will not be charging for the information. Please do not be concerned that you could accidentally run up a bill with us. That will not happen.

I hope that this helps.

Peter@BDM, thank you. very kind of you to respond. I will try to keep my questions general so they and responses may help others.
The information is very useful and I do think the more detailed vauation will be required. My disability is mobility and not as I am aware life shortening!
A medical report is already being requested as assesment of future needs and earnings, I am interested to know if possible what other information is taken into account in the actuarial report i.e does it take into account any thing else other than just the pension in question? if it does not (take into account my ex2b is amilloionaire!) how can the report in itself be useful to decide if a pension divide will leave me better or worse off?

Having confessed that I am not an actuary, I should point out that nor am I a lawyer. So, some of your questions may be better answered by someone on the forum who is. I am afraid that my response is going to be a little vague, not because I am necessarily unwilling or unable to help, but because there are so many ifs and buts. Please bear with me and do not hesitate to get me to clarify or elaborate as you wish.

Actuaries are experts on probabilities from a mathematical standpoint. Because pensions in their simplest form are about paying an income from retirement until death, an actuary can calculate the probable total payments made over the period. This actuarial expertise can be applied in various circumstances, including pensions, life and health and even motor insurance.

So the actuary could have been asked to report on the value of your pension and the probability of you requiring special mobility support in your old age. My understanding is that the Court will have ordered the actuarial report and will have been reasonably specific about its scope. It is likely that the actuary will be asked to place a valuation on the pension. As a pension sharing order (PSO) is one possibility, the actuary may be asked to calculate the effects of any PSO. For example, the Court may have asked the actuary to calculate how the pension would need to be split to achieve equalisation of incomes, typically at one or more given age.

This whole equalisation issue is littered with traps for the unwary and unfortunately, lawyers and the Courts are not immune. The actuary will report on what ever he or she is instructed to report upon. If the instruction is to report on the share or split required to provide an equal income for you and your ex2b at say when your wife is 65 that is what the report will do. However, as things currently stand, your ex2b will not be able to begin drawing her pension until she is 65, whereas in the meantime you would continue to draw your (reduced pension).

If the actuary has only been asked to report on your army pension, you probably will not need to provide any additional information, as they should be able to get most of what they need from the Armed Forces Pension Scheme. However, if they have been asked to take into account any other sources of income that you and your ex2b have, you may well be required to provide information about them. If those acting on your behalf successfully argued that the report should take into account your ex2b’s resources, the report will do so, otherwise it will not.

I am sure that forum participants with legal expertise will be able to comment on this aspect.

Pete@BDM it is begining to make sense, appreaciate your position but its the nearest to the actual actuary I will get.
Below is the courts (x2b barrister written) instruction -
'The parties have permission to instruct an actuary to prepare a report in relation to the respondents armed forces pension, its value, and the effect upon both parties of any PSO made in respect of it'
I think you cover this as one of your para's above but I am interested to know excactly what will be produced and x2b's solicitors have been told to send me a copy of the draft letter to instruct the atuary and I am to agree it? I am wary of what x2bs legal reps are trying to achieve and don't want them to get me into a situation that I can't get out of!
I am very very grateful or your time and explanations.

Howier, OK so the report is specific to the army pension. The other thing that is clear is that the report is to be a joint-instruction, that is to say that both parties are instructing the actuary and therefore have a say in the precise wording of the instruction. It also means that the actuary is reporting to you both and therefore the results must not be biased towards either of you.

It is now for both sets of lawyers to agree on the specific instruction they give to the actuary. The valuation part is relatively straightforward; the actuary will be calculating a fair value of the CEB. I suggest that the next part is crucial “…the effect on both parties of any PSO made in respect of it …” If the instruction given asks the actuary to report only on the army pension, they will ignore any other income that you or your ex2b may have. If one party has a significant income from other sources, pre or post retirement, then the effect of any PSO on that party will be less significant.

In my previous posting, I alluded to the “equalisation issue”. This is always a crucial factor. For example what would happen if the PSO were made with the objective of producing equal incomes [from the army pension!] when your ex2b is 65. To consider this you have to first recognise how a PSO works. It goes roughly like this.

The pension has a value expressed by the scheme as either a CETV or a CEB. When a PSO is made that value is split between the two parties. For example, if the PSO is 50/50 then a 50% debit will be made against one party and a corresponding credit created for the other. Where the pension is in payment a 50% PSO will have the effect of halving the gross annual pension currently in payment. Even if the original pension is in payment, the pension credit member will only receive a pension from their part when allowed under the scheme rules. For the Armed Forces Pension Scheme broadly, this means that your ex2b will not be able to draw the pension until she is 65.

A 50/50 PSO will rarely mean that each party receives the same amount of gross pension at the “equalisation” age. This is because the cost of providing a given pension amount depends upon both age and sex. The older you are, the shorter the period over which the pension will be paid (until death). On average, women live longer than men do and therefore it is more expensive to provide a given pension amount for a woman than for a man of the same age.

All this means that if the aim is to produce an equal pension from the army pension at a given age, unless your ex2b is five years or more older than you; to ensure that when she is 65 she will receive the same gross pension as you, she will need a pension credit greater than 50%.

You might conclude that if your ex2b has other sources of income, the effect on you of a PSO on the army pension will be greater than on her. In which case you and your lawyer should press for the actuary to be instructed to report on the effect of the PSO, considering all income sources. Whether your ex2b and her lawyer will agree to this is very debatable.

Mmmmm folowing this so close my head hurts. Mmmm looking like I may well be screwed for a second time.

Peter@BDM thanks, this is now a lot clearer, I do have to say I am the good guy in all this x2b has cheated me and it is looking increasingly likely I am about to lose a part regardless of how much of my income that will be vital to me in the future, if I do state to x2b's reps that I want all income sources incorporated I may well be even worse offf because I have put things in place (company share options, house price increase, started present company pension scheme 2005 mainly for death in service benefit) all for the short term because I believe I may not be able to keep working to retirement age (disability considered). I do appreaciate that you are not an actuary but I do have some personall issues that I would like your thoughts regarding, the more I am going into this looks more and more likely the liar and cheat will win.