My ex and I each have a public sector defined benefits pension - mine has a CE value 271,000 which is just under half his, due to part time hours for 20 years since our first child was born and lack of similar opportunity for career progression due to same.
We are, ahead of FDR, permitted to jointly instruct a pensions expert to:
"..indicate what percentage share would be required to equalise pension income for both parties on retirement at 67"
I am keen to keep the FMH and to forego some of my potential pension share for an increase in equity share - I'm likely to need him to forego £80,000 of equity.
His solicitor is drafting the instruction and at my request is including a clause to allow a calculation to offset pension value and house equity. Having read the PAG report, the specimen letter annexed to the report has the wording:-
"Please set out the offsetting valuation options available and an analysis of them, including
highlighting any caveats and perceived advantages or disadvantages of a particular option, and state your preferred option on the facts of this case"
The solicitor is using the form of words:-
"...calculate what offsetting lump sum(s) might be appropriate for Mrs X to receive were she to forego any pension share that might be appropriate to achieve the % above."
Is there likely to be any difference in interpretation by the pensions expert depending on the form of words used?
I don't want to end up with the "wrong" kind of calculations but I don't want myriad calculations that will further confuse an already very confusing aspect of our settlement! How can I ensure that I will get a "conversion" figure which represents £1 equity = £x pension value or vice versa?
The answer to your first question is yes - the wording used by the solicitor in the instructions and the way those words are interpreted by the actuary could have an impact on the results of the report.
This is a complex area and there is a particular challenge in working out the appropriate offset figure.
It is one thing to ask an actuary to look at the pensions and work out how to equalise income - as the whole calculation is in the realm of pensions.
But once you ask about offsetting then the 'correct' answer is a tricky thing to work out and is very dependant on your situation.
What the report can establish is:
- a more accurate (than the CETV) value of each pension
- therefore a better idea of the shortfall between your pension and his
Say the shortfall is £100K in pension.
It is not so easy at all to then say what lump sum payment is appropriate for you to take instead of having the pensions equalised.
Because it is comparing apples with oranges - how much cash today is worth the same as a £100k top up to your pension fund?
It is a very personal decision based on your age, your life situation, how much you need the cash now, does it provide a housing solution, what are the tax implications etc.
In summary, whatever figure the report comes up with - the actual amount of cash which works for you is in the end quite a personalised decision.