How much does the CETV value undervalue a db/final salary pension as opposed to any other kind of pension. My ex is trying to persuade me to take parts of the pension with an equal CETV value to the part of the pension he wants to keep. however the part he wants to keep is a DB scheme so is probably worth a lot more than the CETV value states? Also if we divorce I would lose Spouse''s pension etc. Ax
It''s very hard to say, they can be undervalued by a great deal,20% even more, but it depends on so many factors, you can get a quick valuation that will give you an idea, it doesn''t cost an arm and a leg like full reports can, maybe ask Phil the divorce IFA on wiki or the actuary who''s name just ran out of my head, I''ll remember and post.
I think the bigger issue to consider here is whether you can share in the DB benefits when pension sharing.
Some DB schemes do allow you to become a member in your own right and have DB benefits based on your share of the CETV. A lot do not however, but you should check because if you just share the DC pensions then you certainly won''t get guaranteed benefits. If you can confirm the schemes involved I will comment further.
If you are happy to divide the pensions on the capital basis being put forward here then it does make sense to share the DC benefits if you cannot share the DB benefits. Otherwise the valuable DB benefits are just lost! Defined contribution is a term for pensions that accrue just from the contributions paid into them. There is no associated guarantee to the final benefits.
But by sharing in this manner it is unlikely that the pensions when drawn later in life will be equal. So in terms of outcome is that fair? This is where the undervaluation issue rears its head.
Plus as a rule DC pensions are more risky than DB schemes because you carry the investment and annuity risks.
So it is important to decide on the best way to divide the pensions. Be careful on how this is done and what the likely outcome will be.
Once you are aware of what happens on dividing the pension any undervaluation of the pensions can be dealt with.
If there are a number of pension arrangements, some money purchase (dc) and some defined benefit (final salary) then the start point it try and values all benefits on as consistent a basis as possible. Then as Phil stated, it''s a case of investigating what options are available in terms of which pension(s) to share trying to share risk as best as possible and maxmise overall pension assets.
Apologies for the delay in relying. Re your query as to the Pension Schemes involved - the DB Pension Scheme is the Sears Group Senior Executive Pension Scheme. A few years ago I was told it should produce an income of £14k at age 60. 5 years ago it had a CETV value of £200,000. It is guaranteed to increase by a minimum of 5% a year.Benefits are a lump sum of 4 x salary if he dies before retirement age and a spouse''s pension of 2/3 if he dies either in service or retired. I presume these would no longer be due to me if we divorce - is there any way to get round this. Particularly if he marries again? A pension of 33% would also be paid out in respect of the children (children are defined as being under 23 if in full time education).
There are 2 other pensions. One a SIPP. Value varies but about £150,000. Managed through Hargreaves & Lansdowne. Currently split between 3 funds. No associated benefits. The other Pension is valued at about £60,000. It is his employers pension scheme, run by L&G and is the one he pays into currently although he has recently reduced payments into it by half. It would make no payment to Spouses or Dependants in the event of his death.
If I agreed to let him keep the Sears Pension would it be a good idea if he took out a life policy to pay out to us in the event of his death? How much more value would you place on this pension compared to the others?