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Before requesting a pension audit report it is
important to determine if your spouse's pension
benefits are likely to produce a financial benefit
for you in the settlement.
To help you in this decision we have developed
an audit rating table to allow you rate the member's
pension arrangement for your circumstances to
see if an audit report is required for ancillary
relief proceedings.
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If the rating table
shows the pension as an A (significant) rating there
would be an overwhelming capacity for an audit to
add value. This value can then be used by your solicitor
by offsetting the assets in the divorce settlement
resulting in more money for you today, as well as
for pension
sharing. If classed as a B (moderate) rating,
value can be added but not to the same extent. However,
if in your case the spouses cash equivalent value
is material (eg large pensions of £100,000
or more) a B (moderate) rating can produce significant
added value.
However, if the negative factors as shown in C (negligible)
applies in your case, and you give your spouses
pension a C (negligible) rating or D (no benefit)
rating then a pension audit would not produce added
value and the cash equivalent transfer value (CETV)
should be used in these cases.
Where your case for ancillary
relief is contested, you will require evidence
of the value of the spouse's pension arrangement(s)
if they are an A (significant) rating or B (moderate)
rating to support your position, and this is the
purpose of the audit report.
From our experience the A (significant) rating and
B (moderate) rating with a material pension fund
can make a difference in the value of the pension
arrangements by between £50,000 to £150,000
in many cases. |
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Rating summary
To help you decide if a pension audit report is needed as
evidence during ancillary relief, this free audit rating table
can show if your spouse's pension arrangement is actually
worth significantly more than the cash equivalent transfer
value as stated by the pension scheme administrators.
Simply follow the circumstances that apply for you to produce
a rating of A (significant) or B (moderate). There may be
some factors that mean in your case it is not so clear cut,
and these are listed in the C (negligible) rating section.
| Rating |
Benefit |
Description |
| A |
Significant |
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Significant financial benefit on an
absolute and relative basis. The audit has an overwhelming
capacity to add value to the |
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spouse's divorce settlement |
..more |
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| B |
Moderate |
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Moderate financial benefit. The capacity
of the audit to add value is dependant upon the
cash equivalent value at outset being |
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material in absolute terms |
..more |
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| C |
Negligible |
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Negligible financial benefit. An increase
could be attained, but it is not sufficient to justify
the cost of a pension audit and the cash equivalent
value should be used in |
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the divorce settlement |
..more |
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| D |
No
Benefit |
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Due to the nature of the pension arrangement,
there is no financial benefit in conducting a pension
audit and the cash equivalent value should be used
in the |
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divorce settlement |
..more |
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A (significant) rating
This is likely where the CETV
is at least £20,000, in an occupational pension scheme
(specifically a public service scheme, public sector scheme
and final salary pension) and two or more of the following
apply:
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Your spouse
is still employed by the employer offering the pension
scheme; |
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You are more
than three years younger than your spouse; |
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Your
spouse is in a public service scheme (specifically the
Teachers, NHS, Police, Fire Services, Civil Service and
Armed Forces scheme) and has pre April 1978 pensionable
service; |
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Your spouse
is a "high flyer" and can expect more merit
increases and promotions than the average employee; |
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| • |
Your spouse
is in an occupation where early retirement, particularly
through ill health, is commonplace (e.g. Fire Services);
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Your spouse
has a full National Insurance contribution record, whereas
yours is incomplete or you have been paying the married
women's reduced rate of National Insurance contributions.
This relates to the state basic pension benefits
only, although your spouse may also have additional state
earnings related pension scheme (SERPS) and state second
pension (S2P) benefits; |
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Your spouses
pension scheme is underfunded and calculates CETVs on
an artificially low basis to reflect this; |
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Your spouses
pension scheme uses the Minimum Funding Requirement (MFR)
formula for determining the CETV; |
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Your spouses
pension scheme has a history of awarding discretionary
increases to pensions in payment; |
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Your spouses
pension scheme offers early retirement pensions without
actuarial reduction on retirement before the normal retirement
age; |
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The rate of
pension build up in your spouses pension scheme steps
up for total pensionable service after a certain period
of pensionable service has been completed (e.g. Police
officers); |
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| • |
The accrued
pension in your spouses pension scheme becomes available
at an earlier pension age without actuarial reduction
after a certain period of pensionable service has been
completed (e.g. Armed Forces). |
B (moderate) rating
This is an occupational pension scheme (probably only a final
salary pension) and only one of the following apply:
| • |
Your spouse
is still employed by the employer offering the pension
scheme; |
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|
| • |
You are more
than three years younger than your spouse; |
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|
| • |
Your
spouse is in a public service scheme (specifically the
Teachers, NHS, Police, Fire Services, Civil Service and
Armed Forces scheme) and has pre April 1978 pensionable
service; |
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|
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Your spouse
is a "high flyer" and can expect more merit
increases and promotions than the average employee; |
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|
| • |
Your spouse
is in an occupation where early retirement, particularly
through ill health, is commonplace (e.g. Fire Services);
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|
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Your spouse
has a full National Insurance contribution record, whereas
yours is incomplete or you have been paying the married
women's reduced rate of National Insurance contributions.
This relates to the state basic pension benefits
only, although your spouse may also have additional state
earnings related pension scheme (SERPS) and state second
pension (S2P) benefits; |
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|
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Your spouses
pension scheme is underfunded and calculates CETVs on
an artificially low basis to reflect this; |
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Your spouses
pension scheme uses the Minimum Funding Requirement (MFR)
formula for determining the CETV; |
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Your spouses
pension scheme has a history of awarding discretionary
increases to pensions in payment; |
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|
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Your spouses
pension scheme offers early retirement pensions without
actuarial reduction on retirement before the normal retirement
age; |
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|
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The rate of
pension build up in your spouses pension scheme steps
up for total pensionable service after a certain period
of pensionable service has been completed (e.g. Police
officers); |
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|
| • |
The accrued
pension in your spouses pension scheme becomes available
at an earlier pension age without actuarial reduction
after a certain period of pensionable service has been
completed (e.g. Armed Forces). |
If audit rating table shows a B (moderate)
rating you can benefit financially from a pension audit report
but not to the same extent as an A (significant) rating. However,
if in your case the spouses cash equivalent value is material
(eg large pensions of £100,000 or more) a B (moderate)
rating can produce a significant pension value to use in offsetting
resulting in more money for you today.
C (negligible) rating
In A and B above we described the principal factors which
usually enable us to achieve a positive financial benefit.
In your case, however, there are a number of factors which
would have a negative influence on our valuations.
Where initially you think your spouses pension could be considered
an A (significant) rating, two or more of the following
could reduce this to a C (negligible) rating.
Where initially you think your spouses pension could be considered
a B (moderate) rating, only one of the following could
reduce this to a C (negligible) rating.
| • |
Your own pension rights are of significant
value when the same valuation techniques are applied; |
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Your spouses pension scheme
may have a relatively generous CETV formula; |
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Your spouses
pension scheme CETV may be well under £20,000 which
reduces the impact of our calculations in absolute cash
terms; |
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You may be older than your
spouse. |
D (no benefit) rating
The CETV formula applicable to any pension occupational scheme
necessarily uses a number of assumptions which are designed
to be appropriate for the membership as a whole.
This makes the CETV formula a blunt instrument
and means that, for some members, the CETV formula produces
a value which is greater than the value of that members benefits.
In these situations you are actually better off to use the
CETV for negotiation purposes and a pension audit would be
counter productive.
Where the pension arrangement is a money
purchase scheme the CETV should automatically be used because
contributions are to a personal unitised plan. This means
the number and value of these units determine the total value
of the plan.
The type of money purchase arrangements
are stakeholder pensions, personal pensions, retirement annuity
policies (RAPs), section 32 policies, additional voluntary
contributions (AVC) executive pension plan (EPP), and free
standing additional voluntary contributions (FSAVC).
Pension analysis results
The following table summarises the findings from recent cases
of UK pensions on divorce rated A (significant) and the value
added by the pension audit report.
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A |
A |
A |
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25
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34
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22
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23
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35
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40
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£18,100
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£30,100
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£33,300
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£165,600
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£292,600
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£399,700
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£219,000
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£396,300
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£557,000
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£53,400
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£103,700
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£157,300
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To
find out more about these cases, to see if your circumstances
are similar and whether you can benefit financially from
a pension audit report, you can refer to the case study
options below.
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