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Pension sharing - an introduction

Pension sharing - an introduction

Pension sharing does not necessarily mean a 50/50 but it is often the starting point. Much depends on whether all the other assets have been dealt with. The experience and knowledge of your lawyer and that of your stbx may also come into play. There are no straightforward formulae it will (should) all depend on the circumstances of your case.

A divorce under Scottish Law is different because only the value gained during the marriage is taken into account. The CETV (Cash Equivalent Transfer Value) is a crude but the simplest way of putting a value on the pension.

The legislation that enables pension sharing (and attachment) requires that the pension valuation provided by the pension scheme is a CETV unless the pension is in payment, when it is a Cash Equivalent Benefit.It is also a legislative requirement that the court order making the sharing or attachment order is made in terms of the CETV (or CEB). In Scotland, this is in terms of the actual value; in the rest of the UK, it is in terms of a percentage of the CETV or CEB.

The CETV is the value that the scheme would give, if you decided to leave the scheme and transfer the value to another pension arrangement. Because the pension is a promise to provide an income at a later date, the transfer value is to a certain degree theoretical. What it most certainly is not is what it would cost to replace that pension in the commercial pension market. In a divorce, CETV’s often undervalue the pension, because they are really a value for a different purpose; this is particularly likely if the pension is a defined benefit (aka final salary or salary related). One particularly important point with CETV’s is that because they are the value that would be paid if you left the scheme, the assumption is that this is what has happened. Depending upon the rules of the scheme, this can have a very significant impact on the extent to which a CETV under values a pension. CEB’s are rather different. Because it is not possible under current pensions legislation to transfer a pension once it is in payment, the CEB is a value of that pension income stream made by the scheme.

For technical reasons that I will not bore you with here, CEB’s also tend to under value the pension. Whether the CETV is a fair or appropriate valuation of a pension is only an issue in some circumstances. If a pension sharing order is made and looking at the pension in isolation, it is decided to split it 50/50, it does not matter how fair the valuation is. In principle, each party will get half of the theoretical value, so the appropriateness of the valuation is immaterial. Probably this thinking lay behind the legislation. However, the valuation may be a significant issue, at least for one party in various circumstances. The bottom line is that in most cases, before a pension sharing order is made, there should be a technical analysis done to establish whether the intended sharing order will be to the financial detriment of one or both parties.

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How to find out the hidden pension ?
If he hides a pension, how can one find out? Is there any financial dectectiv/investigator can use ? I am in a situation, I know he has something but he has not declared a penny.
CETVs undervaluing pensions
I'm trying to come to an agreement on a pension sharing order. Neither my solicitor or pensions advisor have mentioned how CETVs undervalue pension. The undervaluation is obvious from the figures I've been given, so it's good to see it in writing from an authoritative source. Is there any chance of changes to this system in future?
Very good
No further comment
Length of marriage
Does the length of marriage come into the euqation if pensions must be divied between parties?

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