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Pension values 30% greater than the CETV.
On divorce find out if the provider quote values the pensions fairly. Start here by comparing some valuation examples
Don't
forget state pensions
Background
We were approached by the solicitors representing Mrs
N that were concerned with the treatment of Mr N's pension
rights given that he was now in retirement. Mr N was aged
60 and had three occupational
pension scheme of which he had been in the main scheme
for a period of 23 years. Two of these schemes were already
in payment plus one personal pension.
Mrs N was aged 52 and had no private
pension provision having brought up the children and
looked after the home during most of their married life,
this being a period of 25 years up to the divorce.
Pension audit
For Mr N's occupational pension schemes and private pension
the CETV Method
showed a value of £165,600. Mr N had offered Mrs N £30,000
as a cash settlement in respect of her interest in his pension
rights.
We were asked to advise on the reasonability of this offer.
We noted that a large proportion of Mr N's eventual state pension
had been earned during the course of this long standing marriage
and urged that state pensions be taken into consideration. As
a consequence of the divorce Mrs N was only entitled to 70%
of the full basic
state pension whereas Mr N had the full state pension to
enjoy.
Because of the difference in ages and due to the fact that the
basic state pension is fully indexed linked, the capital value
of Mr N's state pension was £53,400 increasing the total
value of his pension rights to £219,000. Of course Mrs
N's state pension also had a capital value. Nevertheless Mr
N's state pension exceeded the value of Mrs N's state pension
by over £20,000.
Outcome
In the end Mrs N and her solicitor decided on offsetting
and she eventually received a cash settlement of £70,000
in respect of her husbands overall pension rights and this exceeded
the original offer by over £40,000, of which the basic
state pension played its part to secure a higher value.
The important point here is that on divorce
the basic state pension must be considered. The reason why it
could be ignored is that it has the public perception of not
being worth very much, yet the benefits are fully indexed linked
and can add tens of thousands of pounds to the pension rights.
On divorce it has been ignored because it is expected that the
benefits from the state pension are the same for men and women.
However, there will usually always be a difference as the couple
will have differing ages, mortality expectations, retirement
dates, durations of employment and hence National
Insurance (NI) contributions made by the time of the divorce.
The
basic state pension is not subject to pension
sharing so although they can be taken into account
in a pension audit, settlement is typically by offsetting
against the other matrimonial assets.
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