Financial Resolutions overview
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Maintenance and capital - the Approach of the Court
Financial settlements - case studies
Financial settlements - FAQs
Child support
Benefits
Pensions
Tax
Is there any need to check the Cash Equivalent Transfer Valuation (CETV) provided in relation to a pension?
The CETV is the present lump sum value of the rights accruing under a pension scheme as measured by the amount which would be available in the event of a transfer being made to an alternative pension providere. There are a number of reasons why it may be necessary to check that the figure provided is accurate and these include:
- In certain UK public sector schemes, to including the police, fire brigade, armed forces, prison service and some NHS staff an independent valuation ought to be considered because under these schemes the benefits payable to an early leaver are of substantially less value than the benefits payable to a member who continues through to retirement. The Regulations require the CETV to be calculated on the assumption that the member has already left and so there may be a significant under-valuation of these benefits.
- In private sector pension schemes if a company scheme does not have sufficient assets at the time of a valuation to cover the value of its liabilities it is said to be under-funded. In such circumstances the scheme can significantly reduce the CETV to protect the rights of the members who do not transfer out. However if the company remains in business it has to put in place a plan to achieve full funding and it may be that the members eventually receive full benefits. It follows that the CETV quoted at the time will be much lower because of the reduction applied to its value.
- If a scheme provides discretionary benefits advice should be obtained to ensure that the value provided allows for those benefits.
- The CETVs in many schemes for active and pensioner members are calculated on different bases. This can have a significant effect on the value of pension rights. It is possible that in going from being under pension age to over pension age a CETV could rise significantly and so independent advice should be sought in this situation.
- It is essential to ensure that the CETV provided is up-to-date because there is bound to be a significant delay between the date of the valuation and implementation of the Order. It may be that the value of the benefits transferred in the case of a Pension Sharing Order are rather greater than originally anticipated.
- Remember that a CETV is generally much lower than the cost involved in buying an equivalent income externally.
- It is important to ensure that any additional voluntary contributions are included within the CETV that has been provided.
- With effect from the 6 th April 2006 it will be possible for pension funds to be invested in a variety of assets eg. domestic property and so care needs to be taken to ensure that the valuation provided is accurate in the particular circumstances of the case.
Can I stay within the scheme?
It is not always possible for a person receiving the benefit of a Pension Sharing Order to remain within the scheme to which that Order relates. In such circumstances it is absolutely vital that that person carefully investigates the costs of obtaining benefits of an identical value to those benefits to which that person would be entitled had he or she remained in the scheme, because almost certainly the cost of obtaining those benefits will be much greater.
I don't really want a Pension Sharing Order because I would prefer to have more of the liquid capital. Is that a sensible decision?
The only way to achieve this solution is to offset the notional present capital value of the pension against the other liquid assets available for distribution. In such circumstances it is essential to ensure that realistic valuation figures have been provided because if you are relying on an out-dated or unreliable CETV then you are bound to suffer in the event of an Offset Order being made, simply because of the significant risk of under-valuing the capital value of the pension scheme.
Are there any advantages in making an Attachment Order?
The difficulty about Attachment Orders is that the benefits only become payable when the pensionholder decides to take the benefits. In the event of re-marriage having taken place before that date any income entitlement will be forfeited. Nevertheless there are certain circumstances in which Attachment Orders should be considered eg. where the person proposing to take the benefit is in poor health or where an annuity has been established a proportion of which is expressed as being payable to the spouse named in the policy regardless of any divorce or where the CETV is significantly less than the true value of the pension rights. In those circumstances, where the policyholder is unlikely to manipulate the situation to his or her benefit, an Attachment Order may be appropriate.
Why do I need to be careful because my spouse works for one of the uniformed services?
Such pension schemes need careful analysis simply because the CETV can be significantly under-valued. This is because the law requires a CETV to be calculated as if the member left service on the date of the calculation. If a policeman leaves service before completing 25 years he can only take his retirement benefits at age 60. However if he does a minimum period of 25 years service he can retire on an unreduced pension at a much younger age. It follows that a CETV of a member's pension rights in the police pension scheme calculated before completion of 25 years service but while the member is still in active service will ignore a significant proportion of pension benefits. In view of the fact that the Order will be expressed as a percentage of the CETV as at the date that it is made it follows that the beneficiary is receiving much less in pension benefits than ought to be the case.
Why should I do something about "A" Day now rather than later?
If you have benefits that are likely to exceed the lifetime allowance which will initially be set at 1.5 million. Arrangements should be made to take advantage of the transitional provisions allowing for an increase in the allowance.
A Pension Sharing Order has been made in my favour. Should I have checked when the benefits become payable?
Yes because the likelihood is that any entitlement will become payable at normal retirement age namely between 60 and 65 although some schemes may be willing to allow payment to start at an earlier date but they are not compelled to do so. Benefits under a personal pension policy can be taken at age 50 until April 2010.
What happens if I re-marry before obtaining a Pension Sharing Order?
Provided that an application has been made to the Court for financial relief before the date of re-marriage it may be possible to pursue such an application.
A Pension Sharing Order has been made by the Court restricting my wife's entitlement to a percentage of a specific sum. Will that be the amount that she receives?
Not necessarily. It usually takes a pension provider 4 months to implement the terms of the Order. The amount payable will be the sum specified in the Order as at the date that it is effective subject to any market fluctuations between that date and the date of implementation.
What happens if the person entitled to a Pension Sharing Order dies after it has been made?
If the transferee dies before the Pension Sharing Order takes effect it will fail whereas if the death occurs before the liability for the pension credit has been discharged the transferee will have an enforceable credit. The way to avoid all these problems is to ensure that any Order made by the Court is expressed as only being effective in the event of the recipient not pre-deceasing the transferor.
Where the transferor dies before the Pension Sharing Order takes effect that part of the Order is unenforceable but not so when and enforceable pension debit exists at the date of death.
Can a deferred Pension Sharing Order be made?
It is not possible to make a deferred Pension Sharing Order which will take effect on the member's retirement because of the requirements imposed on pension schemes as to implementation.
