£25 Actuarial Report values a defined benefit scheme. It takes only 10 minutes online and gives you a 5-page report signed off by an accreted actuary click here
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
1) Who can benefit from a pension audit? In particular, in cases of divorce
after one year where your spouse has greater pension provisions
than you in a final salary pension or a public
service scheme such as civil service, NHS, teachers,
police, fire services or armed forces.
This is especially the case if they have been in public
service all their working life, and in particluar are
now aged 45 or over. Also, if
you are 4 or more years younger than your spouse, you
are likely to be a particular beneficiary of a pension
audit.
If you are not sure, use the analysis
rating table. This will show you if your spouse's
pension arrangements are an A (significant) rating or
B (moderating) where you would benefit from a pension
audit report. On the other hand, if you have a rating
of C (negligible) or D (no benefit) then the cash equivalent
transfer value (CETV)
from the provider should be used.
2) When is a pension audit necessary?
For pension sharing the prescribed method of valuing the
retirement benefits is the cash
equivalent transfer value (CETV). However, in cases
where the pension arrangements are complex such as a defined
benefit scheme and the value of the benefits significant
relative to other matrimonial assets and in absolute terms,
the CETV
Method is unlikely to reflect a fair value of the
members pension rights.
On many occasions a member of an occupational pension
such as a public
service scheme may already be receiving a pension
income and a different approach to the providers CETV
will have to be used. In these cases expert evidence from
an independent financial adviser (IFA), that is qualified
as a pensions expert, can be provided in a pension audit
to determine a fair value of the retirement benefits.
Here the CETV from the provider will be used as a basis
for the valuation in order to arrive at an adjusted
CETV that reflects the circumstances and specific
needs of the parties on divorce.
3) Does the court accept expert evidence?
There are certain conditions where expert
evidence will be accepted by the court. Under the
Matrimonial Causes Act 1973 (MCA 73) the court will work
with the couple on divorce to achieve a clean
break. If agreement is reached between the couple
through their solicitors to use a single pensions
expert to determine a fair value of the members pension
rights, then the court will accept this expert evidence
and the parties wishes.
If no such agreement has been reached by the parties,
then at the first appointment during ancillary
relief proceedings the court will consider the pension
arrangements and have regard to rule 2.51B of the Family
Proceedings Rules 1991 as is shown in the step-by-step
guide. Only if the court considered the
retirement benefits to be complex and significant relative
to other matrimonial assets would it require expert evidence
in the form of a pension audit. The court would also have
to be satisfied that the extra cost incurred by the pension
audit was justified.
4) Who can carry out a pension audit?
The Financial Services and Markets Act 2000 (FSMA) came
into force from midnight on the 30 November 2001 and this
now means that only a person authorised directly by the
Financial Services Authority (FSA)
can give advice in investments and pensions. The majority
of family law firms have opted to be designated as exempt
professional firms and this means that the work they
do will not be regulated activity. An IFA regulated by
the FSA can give advice on the pensions and investment
aspect of a divorce.
Where a pension audit is required, that IFA should be
qualified as a pensions expert and have the G60 Pensions
or equivalent. This is recognised under permitted activity
13 of the FSA Handbook of Rules and Guidance as being
essential when advising on complex pension arrangements
in occupational pension schemes where an external
transfer could occur as a result of a pension sharing
order, even if this is by default because the existing
scheme does not offer dual
membership and in effect no advice appears to be given.
5) When during divorce procedures would a pension audit
start?
Assuming there are complex and significant pension arrangements
in a defined benefit scheme that justify the use of a
pensions expert, a pension audit should start as early
as possible when the parties are involved in ancillary
relief proceedings. As the step-by-step
guide shows, this starts will an application
being made to the court.
This could be after the divorce
procedure is final but certainly sometime after the
court has granted the decree nisi is granted. The parties
should come to an agreement through their solicitors to
appoint a single pensions expert after the petitioner
has applied for a financial order to divide the matrimonial
assets but before the first appointment.
This should be done before agreement is reached about
the other matrimonial
assets as the fair value of the members retirement
benefits as a fully valued CETV may be much higher than
the CETV from the scheme administrator and therefore have
an important impact on the division of all assets. At
the first appointment if the parties have not come to
an agreement over expert evidence the court will determine
if further information is required and if necessary, the
powers
of the court can instruct that a single pensions expert
provides evidence.
6) Can both parties appoint their own pensions expert?
Both parties could appoint their own pensions expert during
ancillary relief proceedings, however, by the final
hearing the court will expect any expert evidence
to be provided by a single pensions expert. In the early
stages two pensions experts mean that the parties will
have an extra cost in valuing the retirement benefits.
If the parties could come to an agreement through their
solicitors to use one pensions expert to calculate a fair
value, this would keep the costs down.
If the parties use their own experts and different values
are reached for the retirement benefits, this will create
animosity between the parties, prolong the legal process
and increase costs further. Ultimately if the parties
cannot agree on a single pensions expert either at the
first appointment or at financial dispute resolution (FDR)
the court will apply its power under part 35 of the Civil
Procedure Rules 1998 to instruct that expert evidence
be given by a single pensions expert as the step-by-step
guide shows, thereby negating the action
to have two pension experts in the first place.
7) How do you choose a single pensions expert?
Firstly there must be agreement between the parties through
their solicitors to use a single pensions expert. The
pensions expert will usually be an independent
financial adviser with the qualification of G60 Pensions
or equivalent and regulated by the Financial Services
Authority. The parties should also have sufficient confidence
that the pensions expert is knowledgeable in the area
of pensions
on divorce.
The pensions expert could be one that is recommended through
the solicitors of the parties or selected by the parties
independently and instructed to work with solicitors when
conducting the pension audit. To keep the costs down,
the parties should find a pensions expert that will undertake
the pension audit on a fixed fee basis as often there
will be additional work to be performed after the valuation
report is completed.
8) How is a pensions expert remunerated?
For work done on a pension audit during divorce to determine
a fair value of the retirement
benefits, the pensions expert will be remunerated
by way of a fee. To keep the costs down both the parties
should select a single pensions expert that will usually
be an independent financial adviser that will work on
a fixed fee basis.
This means that if after the valuation
report is completed and further work is required from
the IFA (because the parties may now have to re-negotiate
the share of matrimonial assets) at least there will be
no further costs from the IFA. If an IFA charges on an
initial fee plus basis and further calculations are required,
then this could easily increase the costs to both parties.
Where the parties agree to appoint a single pensions expert
the cost of the pension audit is split between both parties,
unless agreed otherwise, and the fee can be paid directly
to the IFA or via the solicitors when work is completed.
8) How much will it cost?
If after using the analysis
rating table it show your spouse's pension arrangements
are an A (significant) rating or B (moderating), you would
benefit from a pension
audit report, and you should expect a report to cost
from £450.00 to £650 plus vat.
9) What information will a valuation report provide?
The valuation report will reflect the requirement of the
parties as well as to determine a fair value of the retirement
benefits.The report will show the fair value for all the
pension arrangements of the parties as a suitably adjusted
CETV, this being based on the cash equivalent transfer
value obtained from the provider. For a defined benefit
final salary pension the details of all benefits including
the funding position of the occupational pension scheme
will be reflected in the fair value.
The benefits will be shown in terms of applying to earmarking
and also to pension
sharing. Whatever the requirements of the parties
for a percentage of retirement benefits, for each scenario
required the members
reduced benefits will also be shown . For pension
sharing the report will also indicate whether the former
spouse is allowed dual membership or if only an external
transfer is permitted.
Disclaimer:
Information found on this site does not amount to financial advice or
legal advice. Every time you access the website you agree to be bound
by the Terms and Conditions.
If you do not agree to be bound by them, you should not use the sharingpensions.co.uk
website. Before taking any action regarding pensions, pension on divorce
or any other financial or legal matter you should seek professional
advice.
