Final Salary pension division

Milky73

Good evening - apologies if this is the wrong place to put this.
I am currently going through a divorce, and we are relatively amicable about things (have been separated 3.5yrs but never got round to finalising things).

I am in a final salary scheme and I am 5 yrs away from completing my 30 yrs service and will be entitled to draw my pension at 48. My stbx will be 44 at that point. My pension at that point will be £33k. She is asking for that to be shared - i.e. so that we both have a pension of around £16.5k I am not averse to this.

My question is, how would this be achieved - I do not think half my current CETV of the pension would give her that - I understand that generally what ever amount we decide would be put into a separate 'pension' for her that she could claim at 60. How therefore do the maths work that enable us to achieve that aim?

Silvertabby

You don't do the maths - your pension fund does.

The usual way to go about this nowadays is by a pension sharing order (PSO), issued by the divorce court. The court awards your wife, say, 50% of your pension rights based on the CETV issued by your pension provider. You wife would then have this pot of money under her own name - but due to the complexities of the CETV calculations it doesn't necessarily mean that she would get £16.5K.

The alternative would be for you to draw your £33K pension and then transfer half to her. But be aware that if you were to fall under a No 13 bus she would be left with nothing.

Milky73

Thank you..

In a conversation we have had she is adamant that she doesnt want 50% of the CETV, but wants to ensure that she get half of what the pension would be. I am guessing that would mean her having a greater percentage of the 'pot' - again if it works then I'm fine with that, but also dont want to end up shortchanging myself.

I have been doing some research and am also finding that apparently the scheme I am in (1987 PPS) is notoriously undervalued when seeking CETV values.

With regard to the last point - we are aware that we could just share it but that should I pop my cogs then her 'security' disappears at that point.

GEZ

If your pension rights accrued before marriage, those years are free to be kept solely by yourself, so pension sharing can commence from the date of the start of marriage

hyubh

Milky73 wrote: »

In a conversation we have had she is adamant that she doesnt want 50% of the CETV, but wants to ensure that she get half of what the pension would be.

Possible variants include the ex-spouse getting...
- A CETV to take elsewhere. This is probably the usual case in a private sector DB scheme.
- An 'earmarking order' where a percentage of the (future) pension is earmarked for the ex-spouse. This is an old-fashioned option since it doesn't engineer a 'clean break'.
- A special membership in their own right in the scheme, becoming a 'pension credit' member. The original member then gets a pension debit against their record to offset things. This is the usual option in public sector schemes, which are well set up for it.

To be honest, I'd just go for the pension credit option and be done with it. Assuming it's still possible, a CETV would not be in your soon-to-be ex-wife's interests if she wanted an income, given it wouldn't be enough to buy an equivalent annuity. Despite this, her becoming a pension credit member in the scheme shouldn't cost you any more.

I am guessing that would mean her having a greater percentage of the 'pot'

It's not about percentages, it's about the method by which 'pension sharing' is done.

I have been doing some research and am also finding that apparently the scheme I am in (1987 PPS) is notoriously undervalued when seeking CETV values.

Sort of... It makes sense on its own terms. Roughly, the government's cost of keeping its pension promises is rather smaller than the individual buying a guaranteed income on the open market - if the government gets into trouble, it can always raise taxes, and in extremis, change the law to mitigate its obligations!

With regard to the last point - we are aware that we could just share it but that should I pop my cogs then her 'security' disappears at that point.

Right, that's why earmarking orders aren't popular.

hyubh

GEZ wrote: »

If your pension rights accrued before marriage, those years are free to be kept solely by yourself, so pension sharing can commence from the date of the start of marriage

That is incorrect (assuming England or Wales - Scotland is slightly different).

Milky73

hyubh wrote: »

Possible variants include the ex-spouse getting...
- A CETV to take elsewhere. This is probably the usual case in a private sector DB scheme.
- An 'earmarking order' where a percentage of the (future) pension is earmarked for the ex-spouse. This is an old-fashioned option since it doesn't engineer a 'clean break'.
- A special membership in their own right in the scheme, becoming a 'pension credit' member. The original member then gets a pension debit against their record to offset things. This is the usual option in public sector schemes, which are well set up for it.

To be honest, I'd just go for the pension credit option and be done with it. Assuming it's still possible, a CETV would not be in your soon-to-be ex-wife's interests if she wanted an income, given it wouldn't be enough to buy an equivalent annuity. Despite this, her becoming a pension credit member in the scheme shouldn't cost you any more.



It's not about percentages, it's about the method by which 'pension sharing' is done.



Sort of... It makes sense on its own terms. Roughly, the government's cost of keeping its pension promises is rather smaller than the individual buying a guaranteed income on the open market - if the government gets into trouble, it can always raise taxes, and in extremis, change the law to mitigate its obligations!



Right, that's why earmarking orders aren't popular.

Thank you for all that - I hadnt heard of the pension credit before, but that sounds like the way forward - probably best that I contact the administrators to see if this is still an option.

Kind regards

Milky

GEZ

May I say that as I have been through the process this is the actual advice which was given in my case

Milky73

Gez, Thanks - We have been together since the first year I was in the scheme, and the reasons that I am happy with her looking at taking a value from my final amount (despite it being 4yrs, 11 months and 20 days away - not that I'm counting...) is as a result of some of the 'trading' we have done around other assets...

GEZ

Are you going to the county court for judgement?

WillowCat

How the pension sharing works in your case will depend on what the scheme supports - i.e. whether it is a pension credit/debit or a transfer out of a proportion of the CETV.

In order to calculate exactly what % share is implemented to give an equality of income in retirement normally requires an actuary to write a pension sharing report. If you are going through the court process it is usual for this to be a joint instruction ordered by the judge.