Final Salary Pensions

Another question: some final salary schemes are currently threatened with being calculated on a different basis because people are living longer, etc. Is it possible to allow for this in any way? What happens if you settle on the basis of offsetting a final salary pension and in the event it's not final salary at all?

Sadie

Joy

Above certain earnings levels you automatically build SERPS now S2P unless you contract-out. You can contract out in two ways, if you belong to a scheme that is “contracted-out” you will automatically be contracted-out and instead the scheme provides benefits that are at least equivalent, or you can chose to contract-out by taking a personal pension. As you suggest, your x may have built SERPS/S2P entitlement before joining the pension scheme.

Peter.

Maggie

I love the new name for our Express Pension Valuation, I'm not sure that it will catch-on with all our clients though!

No pension scheme will ever revise its transfer values just because an independent actuarial valuation places a higher value on the benefits. Similarly, a family court cannot order a scheme to increase the transfer value.

A family court can accept an independent valuation and this is usually relevant when there is a prospect of offsetting. Another application is where pension sharing is considered and the only option offered to the credit member is an external transfer. If the CETV undervalues the pension benefit then the loss is crystallised (at least for the pension credit member) by the transfer. Therefore, the court may accept the independent valuation and use it when considering the appropriate shares.

Peter.

SS (can I call you Sadie?)

Mortality improvements are a huge issue in the pensions world. Pension schemes (including those in the public sector) tend to be slow to adopt the latest statistics because it has a direct effect on the cost of providing the scheme benefits (the scheme sponsor has to put even more money in). Differences in mortality assumptions are one of the reasons why CETVs can undervalue a pension asset. Our actuaries (and those in other firms doing similar work) use more up to date mortality assumptions, so they will normally allow for this.

On your question about settling on the basis of a final salary scheme and it transpires that it is not, I think the answer is that the settlement will probably stand, but I think you probably need input from one of the legal experts on that. As to whether anyone has lost or gained, I guess that depends on the offsetting basis. If it was pound-for-pound on the CETV, it is likely that no one lost or gained as for most money purchase pensions the CETV is an appropriate valuation. [If anyone is interested, the exceptions would be if the pension had a market value adjustment applied or it included guaranteed annuity rates].

Peter.

Thanks Peter, very helpful.

Sadie

The transfer value can be a con especially as you may be entitled to half in a court of law once retirement age is reached if you can wait that long! It just depends on what assets / pensions you also have. Leverage is always the key stack the odds.

Hi, i have the situation that there are two main marital assets, house with equity of 112 thousand and my ex-husbands NHS pensions of 20 years with CETV value of 118 thousand. His solicitor has proposed swapping his share of house equity for my share in his pension. Since he has been so difficault all the way through and has only paid CSA maintenance and nothing towards mortgage, etc.. since leaving, i was suspicious at his generosity as pension value is not usually equated pound for pound to equity in a house! I had my own financial report done on his pension by an independant adviser, recommended by my solicitor, and he has calculated my ex's pension as being worth 295 thousand!! My ex and his solicito would not accept this and had an actuary report done which disputes the value arrived at by my financial adviser? We have not seen the actuarys report, or the value they give the pension. My solicitor has suggested that the two advisers discuss the value to reach an agreement! No response yet.

The discrepancy between the two valuations is obviously quite extreme and I am not sure what to do next and if it is worth pursuing, given the costs and stress involved?

I would appreciate any comments and advice about how to proceed!

Many thanks

Saabgirl.: