How do I work out what I am entitled to???

Hi All

My stbx has a final salary pension that has a CETV value of around £191k (paying out approx 19K a year I believe). I have a pension with a CETV value of £13K.

I don't want to take his pension but want to offset it against the equity of the house sale.

My question is how do I work out my entitlement?

We have been married for 14 years and co-habited for one year before that. His pension started 5 years before we met.

Is there anyway other than by seeing a solicitor that we can work out roughly what I am entitled to?

Many thanks in advance.

Moo x

Hi Moo

The crude way is to do the following.

a) Add the CETV of your pension to the CETV of his to arrive at the total value of the pensions (£204k).
b) Assume that you are entitled to 50% of the pensions (£102K)
c) Deduct the value of your pension from b) (£102k -£13k = £89k)

The result (£89K) is the value for offsetting.

There are a whole series of issues with this calculation. To start with, it assumes that the CETVs are fair and reasonable valuations suitable for offsetting – they may or may not be. If either are salary related pensions they are likely to be undervalued by the CETV. If either values are adjusted in some way (underfunding/insufficiency in a salary related scheme, surrender penalties in a money purchase pension or benefiting from guaranteed annuity rates), then the CETVs could be undervaluing the pension. To look at these issues you would probably need to pay someone to do a simple report (likely cost £100-£200 + VAT). If alternative valuations are required, the minimum cost would be £100 + VAT.

It can be argued, with varying degrees of success, that where someone was a member of a scheme before they were married (or lived together), only part of the pension value should be considered for redistribution. There are all sorts of technical issues against this argument. For example, if the pension is in a salary related scheme and the member was on a relatively low salary when the couple married, the actual value of the pension at that time would have been negligible and certainly not in direct proportion to its value now.

Those arguing in favour of only counting part of the pension value often point to the law in Scotland, where it is mandatory. Under Scottish law the calculation is relatively simple the period of marriage is calculated as a percentage (or fraction) of the total period of scheme membership. In your case fifteen over twenty or 75%. So if this method is used, instead of using the whole £204k CETV in the calculation, only 75% is used (£153k). My tired calculations suggest that the answer in c) would then be £70k.

Finally, it is necessary to consider whether the full £70k should be used when offsetting or whether the value should be adjusted or “discounted” in any way. There are arguments both for and against adjusting the value for offsetting, but it is commonly done. Unfortunately, it is also often done incorrectly. Some would suggest that only 25% of the value should be used when offsetting – the argument being that this is the maximum tax-free-lump-sum that can be drawn from a pension on retirement. I have yet to find anyone who can explain to me why the other 75% of the pension, that will be paid as an income, should be totally ignored; but that does not stop the urban myth being repeated. There are objective and scientific ways of calculating an appropriate adjustment for offsetting. Such a report would typically cost £200 + VAT.

In summary, there are many ifs and buts concerning offsetting and it can be quite expensive to do it properly and fairly. I guess that is why many people resort to the crude methods – the problem is that there is a risk that one party will lose out. My biased view is that to do offsetting crudely is comparable to asking the local newsagent to put a value on your house.


I hope that this helps (and thank you for the PM prompting me to post on this question).

Peter.

Hi Peter

It helps immensely and thank you!

I have decided that it would be in the best interests if I enlist the help of a professional to divide the assests now that I know what is at stake.

Moo x

Does the fact a pension cannot be used to buy a house etc or used like cash in the bank go towards why a pension is discounted.

A pension does not get drawn on until retirement. You cannot walk into a bank and say i'd like a mortgage and i want to use x amount of my lump sum in 20 yrs as a deposit and then the monthly income for raising one.

Banks ignore it in the main though might look again at letting you have a mortgage when you actually do retire and start drawing the money. Oh and then you will only be eligible for a short term mortgage because of your age.

So yes if offsetting it should, in my opinion be discounted because you are taking away assets that can be used now to buy a house and saying well you've got your pension.

In my case it was discounted by 50%. The judge decided to offset and it meant to compensate all the equity went to my ex as well as sm for 7 years. There are no other assets so i will never own a house as i need to raise about £30k deposit and then any sm or cm paid comes out of the calculation for the amount i can borrow.

My ex was adamament that she didn't want a pension share because she didn't want a pension only money now.

Yes mine is a forces pension and the lump sum has been and gone and my ex is living in it and driving it and it paid off her credit cards and paid for holidays. The pension i get doesn't even cover the total amount of sm and cm i payout.

T

Hi NBM

You make many very good points.

The circumstances of your case illustrate exactly why there should not be one fixed approach to the discounting issue, or a fixed discount either.

The fact that your ex preferred cash to a pension suggests that she would therefore be willing to accept a discount to obtain the cash. This is the underlying principle in most professional “discounting” calculations. Having arrived at that conclusion the next stage should have been to quantify the extent of the discount using some objective measures. Though this sounds easy, in practice it is a problem that has only been solved relatively recently. In effect, the task is to measure how important cash is to her. This can and should be done.

In many cases a one-size-fits-all discount is likely to be unfair to one party, just as making us all wear the same size shoes would not work well for everyone!

Thank you peter. To be honest it is a big of a bug bear with me that people like my ex see the monetary value on paper and then think thats it half of that is mine and i want it now not on retirement.

It's not appreciated that it's not like having £200k in the bank now and having half. There are restrictions as to it's use to someone here and now.

I do think as well that to some extent some solicitors are guilty of saying 'well i can get you half of that' and the fireworks and pound signs start. Negotiations can go out of the window (ex refused to negotiate as she wanted all the £110k equity in the house plus half the pension which i couldn't agree to) and the result is a full final hearing.

In my opinion it needs to made clearer to help negotiations that the big figure on paper is not what you'll get but a percentage of a percentage for offsetting. In my ex's case it was classed as 50% of it's value split 55/45 and then offset against the house with sm for a few years to make up the difference.

And no my ex is and was far far from happy as she racked up £50k of legal fees finding out.

T