I had the dilema of the costs of an actuary. My X chose an actuary £950 + Vat. I chose a Financial Advisor £400 + VAT. On comparing both reports there was little difference in the outcomes. Worth considering the cheaper route I think.
The CETV that the scheme will quote will simply be the “transfer value” that the scheme would give if you left it and transferred out. It is the current value and correctly takes no account of any subsequent service with the employer.
As you are in Scotland, it does make a difference (assuming that you are divorcing in a Scottish court) to what happens next. This is because the law in Scotland is different in that only the pension that you earned during the relationship is taken into account in the settlement. Effectively if you have only been in the relationship for three years but in the scheme for ten years, only a third of the pension is considered in the divorce.
If the intention is to do a pension sharing order, then the split has to be agreed or failing that decided by the court. I’ll try to set out some facts to show what might happen. We’ll assume that the relationship and scheme membership are over the same period, otherwise the numbers get confusing. If a 50/50 split is agreed then the pension sharing order will specify this in terms of the CETV quoted by the scheme. Under Scottish Law, the order must be expressed in terms of the actual financial amount, but that make no difference to what happens.
What happens next gets quite technical but I’ll miss out some of the points as they are largely irrelevant to this example. On implementing the pension sharing order, the scheme splits the cash value of the pension (the CETV) in two. Assuming our 50/50 split, you are left with broadly half what you had before and your ex has what is called a deferred pension, that is worth the same amount. Your pension is actually subject to a debit (equal to your part of the pension share). At this point it is important to realise that this 50/50 split does not mean a 50/50 split of the actual pensions that are payable at retirement.
If you are an active member of the scheme (still in the same employment) then your pension will continue to increase as you complete further years of pensionable service. When you eventually get to retirement, the scheme recalculates your pension entitlement as they would for any other member and reduces it by the pension debit.
Your ex is in a different position. Effectively she is treated the same as a member who left service but did not move the pension value out of the scheme. Her pension pot is initially her 50% share of the CETV. The scheme will effectively convert her share of the CETV back into an annual pension entitlement, payable when she reaches retirement age. The scheme is legally obliged to provide a very limited amount of inflation proofing on this pension. It is very unlikely that your ex’s pension will be the same as yours in terms of the annual pension it produces (even if you do not earn added years of pension through ongoing employment and scheme membership). When your ex can draw the pension will depend on the scheme rules. If the rules say that the earliest age at which she can retire with an unreduced pension is 60, then that will apply to her.
All this assumes that the scheme will implement pension-sharing orders by an internal pension credit. In other words, your ex becomes a member of the pension scheme in her own right. This is normal practice in the public sector schemes, but many other insist that the credit is an external transfer. External transfers are very unlikely to be as valuable as internal transfers are, so the pension credit member will potentially lose out.
There are also issues with pension sharing where, because of the way that the scheme implements the sharing order, both parties can lose out. This is why we say that it is vital that a technical assessment of how it will be implemented is made. There are very few lawyers with the knowledge and skills to make such an assessment.
I am sure that this over-long response will raise more questions than it answers. In which case please post again and I’ll try to make the time to respond.
Like good actuaries, good IFAs can add considerable value in dealing with pensions in divorce. However, in broad terms they offer different skills and outcomes. Very few IFAs have the skills to value a final salary pension, but then that is not always what is needed. Similarly, not all actuaries can give financial advice across a broad range of financial issues. Ideally you need both, but then that can get VERY expensive.
Who do you want to advise you on whether to buy a particular house, a builder, and estate agent or a surveyor?
Good point Peter. I guess I was quite fortunate in getting the report I wanted at a cost I could afford. My report was on my pensions in payment and equalisation of pensions at the age of 63yrs 2 months, (my X's retirement date). I am 62 and she is 54. Anyway keep up the excellent advice we are fortunate to have your input
Thanks again to all for posting answers and observations on the only public debate on pensions in divorce especially pension sharing on divorce and for looking at the practical details we've all stumbled over that seem to have been entirely unrecognised/unforseen in the regulations
Peter - you've said:
"Her pension pot is initially her 50% share of the CETV. The scheme will effectively convert her share of the CETV back into an annual pension entitlement, payable when she reaches retirement age."
Can you explain in simple terms how the pension credit which is transferred internally on a defined benefit basis is converted back into an annual pension entitlement ?
Are the links to the member's final salary pension promise somehow preserved in the ex-spouse's pension credit?
In my dumb/desperate FDR approach to the problem and in the absence of any advice I seized on the pension scheme's statement of the annual income from the widow's 50% pension [half my ex-husbands deferred pension income at his Normal Retirement Date] - as an illustration of what a 50% pension share would produce for me - ie I assumed the different gender and mortality rates applying to me would have been applied in reaching that widow's pension annual pension figure.
There is no one single answer to this question – sorry. It all depends on what the scheme trustees have decided. In simple terms, some schemes treat the credits as a transfer-in (which effectively is what it is). In principle, it should be the reverse of a CETV calculation, using the same formulae and factors but without any under-funding adjustments. Some schemes provide pension credit benefits that are not on a direct par with those for ordinary members, for example they may or may not include widow(er)s and dependants pensions; in which case they use some actuarial factors to decide on the entitlement. If there were one simple answer you wouldn’t need pensions specialists and actuaries, wouldn’t that be a shame!
Your question about salary linking is interesting. We have yet to see a scheme provide any linking between the pension credit and the debit member’s final salary. This makes sense for two reasons. Firstly it is in accord with the “Clean Break” principles that pension sharing is meant to achieve. Secondly, if there were salary linking how would it be funded – by a further and subsequent debit to the debit member’s pension?
What we have seen is schemes, which, on pension sharing break the salary linking on the pension debit members pension, even though they remain an active member of the scheme. Net result, the total value (both shares added together) is irrevocable harmed as a consequence of making a pension sharing order! This is why we believe that an assessment of how the order will be implemented should be done in all cases before the order is made.
As your own unfortunate case demonstrates, there are huge risks for clients and lawyers if they do not take appropriate professional advice when considering pension-sharing orders.
Making a little more sense now. History is this, married 25 years and pension statment last year said is was worth £12k per year if I retired now. I have 15 years to do and estimate pension will be worth about £20k per year by then (in current money) by using the online calculator (NHS scheme, which is a very good one).
So, we divorce and my pension is worth £6k to me and £6k to wife as it stands? When I retire my pension will be worth £14k to me but still only £6k to wife (with the respective annual uplifts added in), is my asumption correct. Or is that not how it all works out?
Also, my STBX is not in a pension scheme of her own, so what happens to her. Can she take her share of the money now and put it in a scheme of her own? Or does it stay with the NHS until I retire (4 year age gap so would both retire around the same time).
Am I getting it yet?
p.s. Peter, yes I am going through Scotland process.