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pensions added to the pot at 1/4 of CETV?

  • fio
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13 Feb 08 #13801 by fio
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Pensions question - I have just returned from mediation - 4th meeting I think. We were trying to work out what percentage of the pot I would get if I kept the house and gave up everything else, including his pension. Well the CETV of the pensions comes to around £150,000, all his - I dont have one. So the mediator cut this value down to one quarter £37,500 to add to the pot.
Is this right? It then means that my percentage of the assets is much higher than I had anticipated if I keep the house, which is a right b***er!
Why have this cash equivalent figure if it aint considered the cash equivalent.
I know pensions are complicated but!!!!!!
Does this mean that if I opt for a share of his pension it will be valued at a quarter of its CETV when divvying up?
Hmmm - would appreciate any insights on this one.

  • Peter@BDM
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13 Feb 08 #13807 by Peter@BDM
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I am sorry to say that this is very flawed reasoning by the mediator. There is a theory, which has some merits that says you should not equate pensions to cash in your bank account. The reason is that you cannot “liquidate” the pension.

The rationale of taking the CETV and cutting it down to a quarter may be because under current legislation, upon retirement you can take 25% of the pension as a tax-free-lump sum. Therefore suggesting that only 25% of the pension can be equated to cash. Clearly, this makes little sense, as the other 75% of the value does not just disappear!

It could be appropriate to adjust the CETV when comparing it to cash, but there are no simple formulae for doing so. The sort of issues to consider are, how long is it before the pension can be taken as an income and how important is it for you to have a liquid asset compared to the pension. The other consideration is that the CETV is not an appropriate valuation either, particularly if you are offsetting it against other assets. There is a very good chance that the CETV will be undervaluing the pension.

Whichever way you cut this, there will not be a simple answer to help you decide what a reasonable figure should be. My strong feeling is that it is worth a lot more than £37,500 - to both of you. Start by getting a more reasonable valuation on the pension (it shouldn’t cost you more than £50 + VAT to get that), then I am afraid, it is all about negotiation.

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13 Feb 08 #13811 by maggie
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Peter - what do you do if the people advising you on how to get fair shares of the pension know nothing about pensions or pension sharing?

  • fio
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13 Feb 08 #13812 by fio
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Peter thanks for your reply.
Who would I ask to value the pension and would that value hold up if it came to court? I thought a valuation would cost a lot more than £50.

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13 Feb 08 #13814 by Peter@BDM
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Maggie – You won’t like the answer but then WYSIWYG with me.

You need to ensure that you get proper professional advice, but it is not easy to find and it doesn’t always come cheap. Most people would consider seeking advice from an Independent Financial Advisor (IFA). Trouble is, as with most professions there are good and not so good ones. The biggest problem for members of the public, is knowing which are good and which are not so good. You really do not have the chance to go kissing frogs when you’re faced with the pension problems in a divorce. Probably the easiest route is to find a Resolution accredited IFA. Even that is not easy, because as we know, Resolution does not make the list of accredited IFAs available to the public. Unless they come highly recommended, don’t just settle on the first accredited IFA you find. Ask him or her exactly how much divorce work have they done and how long have they been doing it. You should probably also ask them how many pension-sharing orders they have done where the credit is in the same scheme (external credits are comparatively easy for an IFA, and there is the unfortunate lure of potential commission to pay his or her fees. There are other good IFAs around, many of whom are technically very sound and able professionals, but it all depends on how much you enjoy kissing frogs!

There are two further options. If you can find a true pensions specialist, ideally either a qualified member of the Pensions Management Institute or an actuary they will be able to help. They will have a qualification such as Member, Associate or Fellow of the Pensions Management Institute (MPMI, APMI or FPMI), or be a Fellow of the Institute of Actuaries (FIA), or Fellow of the Faculty of Actuaries (FFA).

Peter

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13 Feb 08 #13815 by Peter@BDM
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Fio

A VERY good question. It depends on what type of pension it is. If it is “money purchase”, any competent financial advisor will be able to give a value and that should stand up in court. Valuing “final salary” pensions is rather more complex and requires the use of actuarial techniques. This usually means that you need an actuary to do the calculations, or someone who works under the direct guidance of an actuary.

An actuarial report will stand up in court, but as you suggest they are not always affordable. Typical cost of a single valuation on one pension would be around £500 + VAT. There are other possibilities, but it would be improper for me to suggest them in the open forum. If you want, have a look at my Wikivorce profile and if you are still interested send me a private message, so I don’t have to worry about breaching the excellent Wikivorce promotional and advertising rules.

Peter.

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13 Feb 08 #13817 by Peter@BDM
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Fio

Sorry, I just read your original posting and realised that I didn’t answer you final question.
“Does this mean that if I opt for a share of his pension it will be valued at a quarter of its CETV when divvying up”

The simple answer is no, it doesn’t. If you agree on a pension sharing order then your share will be whatever percentage or share you agree on (or is decided by the court if you fail to reach an agreement). So, if you agreed to split 50/50, your share would be 50% of the CETV. But take great care; there are all sorts of issues with pension sharing orders, especially if the scheme will not create you as a pension credit member. Even if they do, you must make sure that you get a fair deal, which undoubtedly means obtaining a professional report and that will be expensive (£700 + before VAT).

If all else is equal, and the schemes pension sharing approach is reasonable and you get a credit within the scheme then whether the CETV is a fair value or not becomes academic. The benefits that the scheme will provide are important.

Confused? Post some more questions once you have thought about it a bit more and hopefully things will become clearer and easier.

Peter.

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