How to decide whether you should consider doing independent actuarial valuation of a pension.
Cost is often the main obstacle to commissioning an actuarial pension report. These reports are usually done either to obtain a fair valuation of the pension(s), as compared to the CETV provided by the pension scheme, or to assist in redistribution decisions where pension-sharing orders are considered.
Fair valuations are important if offsetting is considered but it is sensible to do a simple cost-benefit-analysis. For public sector pensions (other than those for the uniformed services) and average private sector schemes, the CETV is likely to undervalue the pension by 20% or more. Therefore, if the CETV is £50,000, an independent actuarial valuation may produce a valuation of £51,000
Using this example and assuming that the pension asset redistribution is by offsetting (one party keeps all or most of the pension and the other party keeps all, most or more of another asset), then the starting point for redistribution is typically 50:50. Therefore, in our example, each party would have been entitled to half the pension asset, or £25,000 based on the scheme CETV. If an independent actuarial valuation increased this to £25,500, it could be argued that one party “gained” £500 of asset value through getting an independent valuation. Our fee for producing a full independent actuarial valuation of a single defined benefit pension is £560. It is difficult to argue that we would really add value by producing a detailed report in a case where the CETV is £50,000 or less. Our fees for this type of report are consistent with other firms, which is why most would say that it would be unusual to commission a full actuarial report where the CETV is less than £50,000.
Pensions for the public sector uniformed services (police, fire-service, prison officers, and armed forces) produce different numbers where the pension scheme member is still in service. This is mainly because these pension schemes have lower retirement ages, but only for those who remain in service until they retire. When calculating a CETV, the scheme is required to do so as if the member has left service and this usually results in a significant under-valuation of the pension.
See http://www.wikivorce.com/divorce/pdfs/Pension-CETV-value-comparisons.pdf for examples. As valuation differences of over 50% are the norm rather than the exception for these pensions, the cost-benefit-analysis produces different results. If the scheme CETV for this category or pension is £50,000, an independent actuarial valuation may be £75,000, or more. In which case, the £560 cost of an independent actuarial report adds considerable value for one party.
The innovative Express Pension Valuation (EPV) service offered by our firm (Bradshaw Dixon & Moore Ltd) and available through Wikivorce removes many of the valuation uncertainties and at an affordable price. For non-uniformed services pensions the on-line service produces an independent actuarial valuation for £29.38. The off-line version, for uniformed services pensions, costs £58.75. As these valuations are more affordable, our recommendation is that they are appropriate for pensions where the CETV is £40,000 or more.
Actuarial pension reports are frequently done where a pension sharing order is likely. Pension sharing can be quite an expensive option as the average total cost of a pension sharing order is approximately £1,500 (including legal fees, actuarial report costs and scheme implementation fees). For cost reasons alone, pension-sharing orders are rarely a sensible option for pensions with a CETV of less than £100,000.