Independent acturial valuation.... or not?

My STBX's Final Salary pension CETV has just arrived and is 35% less than an online valuation I paid for a couple of months ago. Should I go for the full acturial valuation? The figures are £430K (Scheme valuation) v £580K (online valuation). My STBX has already left the (private) scheme in question. He was made redundant from the company three years ago so I can't quite understand why there should be such a large discrepancy. His redundancy package was very generous and he can start drawing the pension in just over 3 years time, when he is 55, with no loss of benefits. We have been married the entire time that he was a member of the scheme.

In short yes have an actuary value it, talk to a solicitor first they can instruct the actuary asking the necessary questions to get the most from the report.

Twigsky

It is not unusual for there to be a 35% difference between scheme CETV’s and independent valuations. Before you spend any more money on actuarial reports, you need to consider what outcome you are seeking. By this, I mean whether you want offsetting or a pension sharing order (not many favour earmarking these days).

If you are seeking offsetting, the information you have may be all you need, particularly if your solicitor can sucessfully argue that it is the independent valuation that should be used rather than the CETV. It is possible that an argument will be raised that the pension value should be “discounted” for offsetting. You may need actuarial help here, particularly if there is any suggestion of finger-in-the-air discounts like the all too frequently quoted 25%.

For pension sharing, the undervaluation of the pension could have implications for you but these will depend on a number of factors, not least will be how the scheme implements orders. For an equitable split, you should be considering a sharing order that is aimed at equality of incomes in retirement. There could be issues about your retirement age under and pension credit. Even if you can draw the pension credit at 55 (like he can his pension), it may be on an actuarially adjusted basis. All these topics should be considered when arriving at a pension sharing order split, and that usually means an actuarial report is required.

Peter.

Hello Peter

Thank you for your reply. It seems unlikely at this stage that offsetting will be an option as there is only approximately £120K capital in the FMH. My STBX has suggested earmarking but I am reluctant to follow this option as my understanding is that he could remove the entire pension fund, put it somewhere else and then leave it until he is 65 and of course I would lose benefits if he dies before me. So it looks as if an acturial valuation will be the next step forward.

Earmarking was all we had by way of a legal access for spouses to pensions before pension sharing was brought in, and altho it is still there, it is very rarely used as in most circumstances it is now distinctly second best. The fact that a pension share survives the spouse's death is generally the big factor.

As Peter highlights, if you are going down the pension sharing route it is important to think about what you want and when, and instruct actuaries accordingly. Actuaries work out what you ask them to work out, it is NOT their job to come up with what is best for you (not least because they are usually employed on a joint instructions basis and so have to be entirely neutral) unless their instructions are explicit.

If you (and your solicitor) don't ask the right questions, you can't blame the actuary for not giving the right answers! Make sure your solicitor really knows what they are doing, or that they get separate advice if they are not sure.

Consider asking and thinking about some of the following which will help you decide between the internal and external options when pension sharing.

- 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.
- can you pay in further contribution should you wish?

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.