CETV greater value than marital assets in a divorce

Spider777

For the purposes of splitting assets in a divorce settlement. What happens if one persons CETV pension has a higher value than the relatively small marital asset pot? Just for clarification, the other person in the divorce has no pension. 

tacpot12

It's down to what can be negotiated. The starting point is a 50/50 split of assets, and it is probably better for the person with no pension to receive 50% of the other person's pension and for the person with the pension to recieve 50% of the other assets, but anything else can be agreed. e.g. The person with the pension could keep most of it, and receive no other assets. The person without the pension would receive a little pension and all the other assets.

I expect a court would order the first option.

AskAsk

as said above, the value of assets and CETV will be added together and split into two.  likely your spouse will keep the assets and get some pension if the total asset value is less than 50% of the pension.

GDB2222

When I was doing this sort of work, the pension value would be discounted by about 15% compared to other assets. So £100 of CETV would be equivalent to £85 in the bank. 

It’s a money purchase pension?

Spider777

tacpot12 said:

It's down to what can be negotiated. The starting point is a 50/50 split of assets, and it is probably better for the person with no pension to receive 50% of the other person's pension and for the person with the pension to recieve 50% of the other assets, but anything else can be agreed. e.g. The person with the pension could keep most of it, and receive no other assets. The person without the pension would receive a little pension and all the other assets.

I expect a court would order the first option.

Thank you, this is helpful. I am attempting to help a colleague out who doesn't have a solicitor. It has come to light that one persons pension has a CETV of £140k, the other person has no pension. The marital assets appear to be in the region of £120k in savings. 

Spider777

GDB2222 said:

When I was doing this sort of work, the pension value would be discounted by about 15% compared to other assets. So £100 of CETV would be equivalent to £85 in the bank. 

It’s a money purchase pension?

Interesting, thank you. It's a defined benefits public sector pension. 

Exodi

Spider777 said:

tacpot12 said:

It's down to what can be negotiated. The starting point is a 50/50 split of assets, and it is probably better for the person with no pension to receive 50% of the other person's pension and for the person with the pension to recieve 50% of the other assets, but anything else can be agreed. e.g. The person with the pension could keep most of it, and receive no other assets. The person without the pension would receive a little pension and all the other assets.

I expect a court would order the first option.

Thank you, this is helpful. I am attempting to help a colleague out who doesn't have a solicitor. It has come to light that one persons pension has a CETV of £140k, the other person has no pension. The marital assets appear to be in the region of £120k in savings. 

Well the numbers may be convenient - if both were open to it, they could potentially decide between them that a simple split might be one partner taking all of the other martial assets and the other retaining their pension.

Though it might not be in the best interests of the person with absolutely no pension and I'm sure they would be steered away from that option during counsel. In any case, it's the simplest option.

Spider777 said:

GDB2222 said:

When I was doing this sort of work, the pension value would be discounted by about 15% compared to other assets. So £100 of CETV would be equivalent to £85 in the bank. 

It’s a money purchase pension?

Interesting, thank you. It's a defined benefits public sector pension. 

Do you know what scheme?

Exodi

GDB2222 said:

When I was doing this sort of work, the pension value would be discounted by about 15% compared to other assets. So £100 of CETV would be equivalent to £85 in the bank. 

It’s a money purchase pension?

I didn't know that. Out of interest, any specific reason why? Is it to reflect the 'restrictions' on it (e.g. it can only be taken at a certain age, it might be taxable when drawn, etc)?

I always thought CETV was typically under-representative of value. 

Malthusian

Spider777 said:

Interesting, thank you. It's a defined benefits public sector pension. 

The valuable guaranteed pension (which the other spouse very likely won't be able to benefit from) is almost always more valuable pound-for-pound than the CETV that would come out. (This can be confirmed by comparing the CETV with what it would cost to buy an annuity with inflation-linking and the equivalent spouse's pension at Normal Retirement Age.) 

In purely financial terms therefore there is an argument for one spouse to keep the pension and the other to take the other assets. It may leave that spouse with "no pension" but the savings could be used to give them housing security. Of course they could also spend it all or invest it in a scam (the recently divorced are particularly vulnerable to these) and leave themselves penniless.

Exodi

Malthusian said:

Spider777 said:

Interesting, thank you. It's a defined benefits public sector pension. 

The valuable guaranteed pension (which the other spouse very likely won't be able to benefit from) is almost always more valuable pound-for-pound than the CETV that would come out. (This can be confirmed by comparing the CETV with what it would cost to buy an annuity with inflation-linking and the equivalent spouse's pension at Normal Retirement Age.) 

In purely financial terms therefore there is an argument for one spouse to keep the pension and the other to take the other assets. It may leave that spouse with "no pension" but the savings could be used to give them housing security. Of course they could also spend it all or invest it in a scam (the recently divorced are particularly vulnerable to these) and leave themselves penniless.

I guess one of the best options for them if they proceeded like this would be to feed the £120k into a SIPP (over a few years) providing a £150k pension with tax relief (which is a big win as I assume the person with no pension is not working meaning the £30k tax relief is a refund of tax that was never actually paid) , which could buy an RPI linked annuity paying ~£6.7k today (assuming they were 65). On top of state pension that's an income just over £18k per year, which is manageable.  If they're younger, even better because the money could be invested and should grow before retirement.

I think it's spot on your point about scams - I watch a weekly series about romance scammers (probably consumed hundreds of episodes by now) and the victims are nearly always recently divorced. Scammers are of course happy to take advantage of people at their most vulnerable so proliferate dating apps, specifically targeting people that state that they are recently divorced (secondly because they are likely to have a pot of money from the proceeds of the divorce).

Malthusian

Exodi said:

I guess one of the best options for them if they proceeded like this would be to feed the £120k into a SIPP (over a few years) providing a £150k pension with tax relief (which is a big win as I assume the person with no pension is not working meaning the £30k tax relief is a refund of tax that was never actually paid) , which could buy an RPI linked annuity paying ~£6.7k today (assuming they were 65). On top of state pension that's an income just over £18k per year, which is manageable.  If they're younger, even better because the money could be invested and should grow before retirement.

They would need enough earned income in each tax year to cover each pension contribution (as well as enough Annual Allowance, which is less likely to be a problem, unless Labour change the rules).

I think it's spot on your point about scams - I watch a weekly series about romance scammers (probably consumed hundreds of episodes by now) and the victims are nearly always recently divorced. 

Non-romantic financial scams as well. A recurring theme in Ponzi schemes and other financial scams is divorcees desperately trying to get back the money they "lost" to the divorce. (Taking away half of something you already owned 50 / 50 is of course not a "loss", but that's the delusion that fuels the scam.)