Final salary pension scheme share

Ivy,

I hope that my reply to Penny will help you to understand that splitting the pension 50:50 will probably not provide you with half the retirement pension. The risks and pitfalls are considerable, so you should carefully consider your solicitor’s advice to obtain expert assistance.

Peter.

Thank you Peter, your reply to Penny has helped me understand my situation a little more. I agree I do need to get some financial advice before agreeing anything with my husband.
Could I just please clarify, from your reply to Penny, is the CETV only taken into account if I were to opt out of the company's pension scheme? If I choose to become a member of the company's scheme (and receive the credit) is it correct that my pension would be based on the contributions made to date and the predicted final salary pension (as at date of court's Consent Order)? I appreciate the amount I receive will be different to my ex due to gender and he will have continued to pay into the scheme after our divorce.

Ivy

Ivy

The CETV is the figure the scheme will and must use for any pension sharing order.

Schemes have the option of offering either what are referred to as internal credits or external credits when a pension sharing order is made. Some practitioners refer to internal credits as “shadow membership”, which is a term that I personally dislike as it implies that the benefits are the same as those enjoyed by members of the scheme through their employment (past or present). Pension credit members do not always receive the same range of benefits. For example, their pension might not include a widows/widowers pension.

Back to the point of internal and external credits under pension sharing orders. The public sector schemes only offer internal credits, in other words the pension sharing order beneficiary becomes a member of the scheme in their own right. Other schemes may offer internal credits but this is less and less likely. Instead, the scheme will provide a share of the CETV (their valuation of the original pension), which must then be invested in another pension arrangement. There is no “cash” option under a pension sharing order. Some schemes might offer the option of either an internal or an external credit.

As to whether the credit is based on the contributions made to date and the predicted final salary pension; the answer is yes and no!

The credit – and the valuation of the pension made by the scheme – is based entirely on the pension built up to date. In most cases, this means the contributions made by both the employer and the employee. The pension-sharing concept is to achieve a so-called clean-break, consequently any further build up of pension entitlement by the original member is for them and the pension credit member does not participate or benefit from any further build-up of pension entitlement through additional service or salary increases.

Peter.

Peter

Many thanks, you have been really helpful. So much to think about!

Stella

Ivy - I shared a final salary pension a few years ago - If only I'd got answers to the questions you're asking now - don't stop asking questions.
I asked but my solicitor failed to answer and my assumption was that she knew all about pension sharing and my questions were too daft to bother with.
How wrong I was.
If your stbx agrees you should have £10k of the £20k annual income potential of the pension at the date of divorce embrace that idea: called equalising income from the pension.
50% of the CETV won't provide you with 50% of the £20k per year.
He may believe that I suppose - don't you believe it unless you've got that pension promise in writing and signed by the trustees of the pension scheme.
About leaving your share in the original pension scheme:
Is there any income /other advantage to leaving your share of the pension in the original final salary scheme?
The clue is in Peter's advice: "Factors, set by the scheme actuaries, are then used to convert that lump sum credit into an annual pension entitlement. These factors are age and gender dependant and could to some extent be likened to annuity rates in the open market where a lump sum can be used to purchase a pension promise."
Does that mean you get roughly the same pension income from your share of the final salary pension whether you leave your share inside the pension scheme or transfer it out?

Have a look at the FSA Annuity comparison tables to see just how much cash you need to buy a guaranteed 10k annual pension for life.
Get the CETV - only your stbx or the court can get the CETV from the pension scheme - halve it to find your share - look at what annual income you'll get from the annuity your 50% of the CETV will buy.

What other income will you have in retirement?

Hi,

Peter and Maggie have raised a number of key points for you to consider when deciding between the internal and external transfer options.

In addition, I would add:

- what exactly is being offered via the internal option - is it a defined pension at retirement or a percentage amount of fund value based on the CETV?
- what are the costs involved in implementing any order and who is paying?
- what happens to your pension if you die or suffer ill health?
- what is your attitude and tolerance to risk?
- how old are you now and what is the timescale until you would want to take retirement benefits?
- what is the current funding position of the pension scheme and what is the solvency of the sponsoring employer?
- what other income / capital will you be able to rely on in retirement?
- what is your current / future employment and pension provision prospects?
- would you prefer to retain control of your pension and make decisions on how to invest and how you draw benefits at retirement.
- are you and your ex spouse in good health.

These are the sorts of questions I would be asking to ascertain what might be the most appropriate option.

Please note: Although I am a Resolution Accredited Independent Financial Adviser my comments are given here as general guidance ­­­­­­base­­­­­­d on the (often limited) information available and does not constitute financial advice. They should not be seen as a substitute for detailed financial and legal advice.

Phew, doesn’t it show when you get a decent and very professional IFA contributing to this forum. I am pleased to say that TDI is one of several that now contribute and have done recently. They are light years away from the “salesmen” that have been effectively despatched in the past.

Peter.