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Got the pension CETV? Is it the right thing to consider?

Obviously, in a divorce case where the pension is seen as relevant (and, to my mind, that is almost always) a valuation would be needed. But then there is a need to properly understand the valuation!

I pause at this point to say that this article is mainly for lawyers from other firms who do not specialise in family law and who need guidance on this complex area. If you are not a lawyer, this article on pensions and divorce is likely to be more helpful.

Of course, the prescribed method of getting a valuation is, at first at least, via the CETV
I often argue that a CETV is not the fairest representation of the value of the pension benefits. Indeed, it might be that using a CETV is wrong in principle.

Examples of when a CETV might not be the most appropriate include:

• armed forces, police or some other public sector schemes (we deal with a lot of such cases and a CETV is probably irrelevant)

• where there are discretionary benefits

• where the CETV is not necessarily the total value of the fund (I think an example would be a defined benefit scheme)

• if a fund is in deficit (surely never seen!)

• where there is a potential surplus share or top-up

These, and other instances, may warrant the instruction of an expert IFA to consider and potentially challenge the fairness or accuracy of the CETV.

In addition, the specific facts of the case may require closer consideration of the CETV or the instruction of an expert to consider the impact of these other facts. Examples include:

• if the party with the pension rights is seriously ill

• if early retirement is being considered

• where there might be pre-marriage or post-separation benefits that have accrued

• the age of both parties

• whether the pension is in payment

It seems to me that there is a clear need for us all to be better informed about these issues so that they know when to ask for expert IFA help.

Andrew Woolley
Divorce lawyer
Comments and response

The very word Pension may seem complex for those in another profession, however that what IFA’s are for. Each and every case we find is different as everyone has their own individual needs and feelings. Some people’s pride could let their financial situation suffer so tact and offering different options may solve the problem. We have a good system for pension valuations in the divorce situation and yes the calculations may be complex. as long as they are correct the judge is usually happy. …

By Jennifer Nicholls on Tuesday July 27, 2010

Jennifer, You are right! I am a bit troubled by Judges and how they know a valuation is right, given there is an argument about how to “value” one. Given they are almost all ex solicitors who have done maybe other subjects it is hard to see how they have the knowledge to know. It’s OK for me; I have been in family law over 25 years but most solicitors firms try to do most subjects….

By Andrew Woolley on Tuesday July 27, 2010

Yes of course Andrew. And what I mean is they know it is right because we have assured them, but no they don’t actually understand the calculation and I don’t expect them to.

By Jennifer Nicholls on Tuesday July 27, 2010

The main factor to be taken into consideration when analysing a CETV, Is the party still a active member of the scheme and if so is the CETV calcualted as if the member has left the scheme. Why is this important, because current practice is that the party with the CETV usually the male has the better career, and the argument is that would the party have achieved such a level of career progression if party b had not managed the home and children, therefore it should be argued that party a’s future level of success and earnings was built upon the platform provided by party b. Therefore the CETV should represent the earnings link between the salary currently enjoyed and the potential of that salary….

By Lee Clarkson on Tuesday July 27, 2010

Quite often when working with a family lawyer I have spent a lot of time explaining the very concepts that Andrew has elucidated here. In fact, his initial post serves as a useful aide memoire to those of us working in this area! All I would add is that as professional advisers we need to develop ways to work more closely together to arrive at a fair outcome for both parties to a divorce. As Andrew rightly points out, the valuations involved are often open to significant interpretation due to the calculation methods, and we could do a lot more to ensure that this does not lead to inconsistency and, dare I say, abuse. Each case is different, but perhaps we could subscribe to common principles that would save us all a lot of time, and therefore reduce cost and stress for our clients. …

By Steven Hennessy on Tuesday July 27, 2010

Yes Steven, I agree about working together with solicitors closely especially in the pension/divorce area. Next month I’m giving some solicitors a presentation to help them understand a little more about what to consider when deciding on pension sharing or offsetting etc so as not to put the client at a disadvantage at a later date ie once they have retired. I prefer to do small informal presentations as it lets the solicitor ask questions freely without them feeling they should know this stuff already. We are all experts in our own fields but sometimes tactfulness can go a long way….

By Jennifer Nicholls on Tuesday July 27, 2010

Andrew is spot on – just having the CETV is meaningless with no understanding on this can be dangerous ! but we should never take our focus off who we are working for – the client. The problem I see most in this area is the lack of planning at the start and the end for the client, it is not about a pile of money ! a greater understanding of the CETV and the pension benefits has to be a must. I have seen a case where one of the parties wanted to use a CETV 2 years out of date ! after a brief discussion and a new calculation it is somewhat higher !  I think it just shows that an expert in the field is needed – I do not confess to know about law and would never pass myself off as a solicitor

It is great to see the work Jennifer is putting in to work with good quality solicitors and educate them – as sticking your head in the sand or putting your finger into the wind doesn’t work ….. when it comes to this complex work …

By Paul Richardson on Thursday July 29, 2010

I’m not a lawyer but I don’t see how anything can be protected from being used in divorce proceeding unless there was a pre nuptual agreement. It would still be up to the solicitor to find out what should be included in the joint assets etc. What do you think Andrew?…

By Jennifer Nicholls on Thursday July 29, 2010

It is normally impossible to stop a Court “getting at” assets no matter whose name they are in, although indeed a prenup can help greatly. There are a few schemes which say assets can be protected. Courts hate them and will do all in their power (and that’s a lot!) to take them apart. But I am sure clients would be interested in a scheme which is legal and works….

By Andrew Woolley on Thursday July 29, 2010

My experience is, that unless as Jennifer mentions, a agreement is in place before, they can not protect against the court in the event of divorce – the use of trusts is a very grey area for protection …I know this is becoming more common for couples to put these types of protection in place before marriage … sign of the times ! …

By Paul Richardson on Thursday July 29, 2010

What confuses me is that if a defined benefit pension of say £10k pa is to be shared and the scheme actuary provides a CETV based on actuarial assumptions – say its valued at £200k, then if these are challenged and value is asserted at £300k using different assumptions,then in order to provide the second party with £150k, the first party’s pension value is reduced (in the scheme actuaries method) to £50k – i.e. £2.5k per annum or 1/4 of the original amount….

By Confused on Friday September 28, 2012

Blog Author - Andrew Woolley

Andrew Woolley Andrew Woolley

Andrew is the owner and managing partner of Woolley & Co. He regularly offers comments and views on a range of family law issues.

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