What is CETV actually worth in Cash

Hi, Have read numerous posts regarding pensions in Divorce, but getting more confused the more I read. Married approx 25 years.

Ex CETV is £284,078,
pension on 60th birthday 16,000, Lump sum 48,000,
Widows pension 8500,
Death Gratuity 151,000

My question is what percentage of above should I be putting into the pot for financial settlement. This is Teachers preserved benefits pension.

Unfortunately I am unemplyed at present and hoping to offset house against above. Advice would be greatly appreciated.

The simple, if unhelpful, answer is: it depends.

Some pensions are worth more than the CETV indicates such as those operated in the forces and for civil servants.

There is case law, Maskell v Maskell, which gives a figure of 25% as a direct cash exchnage value. But, it is widely accepted that the figure of 25% is too low and should start higher an increase as the you get closer to retirement age. Upon retirement it is possible to consider the pension as an income stream although it is still possible to split a pension in payment.

The basic view is that a pension is not the same as property as you can't live in a pension and you can't buy property with a pension. This is particularly valid when one party says "I'll have the house, you can keep your pension" even if the figures support this as the person with the house has the benefit of use of the house whereas the person with the pension has to wait until it begins to pay out before deriving any benefit from it.

See this old post about the Maskell case: www.wikivorce.com/divorce/Divorce-Advice...ell-v-s-Maskell.html

Charles

Thanks for you prompt reply. The advice Ive been given on here and elsewhere suggest the Pension fund can be one of the most valuable assets in sorting a financial settlement. Yet it seems that usually only 25% of the CETV value can be used (if one is offsetting against FMH) for example.

If this is the case what happens to the remaining 75% of pension fund??

Also should one accept 25% for offsetting. It's hardly worthwhile offsetting at all if this is the case.

There are two starting points.

If you are the owner of the pension, the norm for offsetting is to say the Pension CETV times 25%.

If you are acquiring the pension rights and want to use it for offsetting the norm is to say the Pension CETV times 60%.

Time to retirement plays a big roll in the final discount.

Although the CETV calc should take care of the 'time value of money aspect' it does not take into account 'the convenience curve'. It relies on an actuarial view of longevity.

The question is, what is the 'convenience' worth?

You can't spend a pension, if you die, the CETV is meaningless in terms of an estate and only the death benefits (if there are any) would come into play.

You can't borrow against a pension (like you can a house or a wholelife insurance policy.)

The best way to get the full benefit of a pension share is to take it as a pension share. If you have to offset (as opposed to would like to offset) expect to be offered a heavy discount.

Hi,

I would advise you to ask an actuary to help decide what the figure should be. Offsetting is very complicated and there is a lot of misinformation out there. The posts here have captured the key issues.

As you are aware the pension is very valuable and may actually be worth more than the stated CETV. Again, an actuary can guide on this.

Once you have the % figure then you will be able to decide whether the offset route is appropriate for you and whether you have enough equity / capital to do it etc.

Has your ex agreed that offsetting is the best approach for you both? Again, this might be something that needs agreeing before proceeding with a calc?

Of course, when offsetting it is important to be aware of your own retirement plans and, although in the short term your housing needs will be met, how will you fund a decent retirement income?

Regards

Phil

Thank you for your reply - I am due to meet with ex and solicitor soon, not sure what ex's intentions are - Im hoping we can offset pension with home, as I could not afford to rehome myself and children and the home would be more useful to me now than a pension later on. Possibly I could sell the home in the years to come and downsize and hopefully this would provide some income for retirement.

If not I suppose pension sharing would be the next approprate alternative. If I did this would I be entitled to max 50% or would this depend on our settlement split.

Hi,

For pension sharing I would argue that given a 25 year marriage you should be asking for equality of income.

This could potentially mean a greater share than 50% for you as it costs more CETV to provide the same pension for women than it does a man. This is based on longevity and the fact that women live longer than men.

Of course, the fact that you could take more of the pension as a pension share may well help your argument to offset more if not all of the matrimonial home against the pension (values etc permitting). I note your comments here but have to mention that equity release or downsizing is a fairly risky approach to providing income in retirement. Is there a disparity in the values between the house and the pension?

It is important that a balance is struck within the settlement between both of your needs for housing, income, pension, etc and it is fair.

Are you at the stage of discussing the finances between you. Given the value of the pension I would advise you to use an actuary regardless of whether you go the offsetting or the pension sharing route. They will add value.

Regards

Phil