Divorce - PSO or cash or mix

Pat38493

Minky123lala said:

Pat38493,
Thanks for taking the time to share your thoughts. Yes I have a solicitor - which I have paid for advice so far, but they were not able to advise on this specific pension related point. He has had some free solicitor advice and a MIAM session with a mediator. 

I'm not exactly sure on why £187,500 - I will try to find out, without provoking him, which is difficult. I think you are probably right that I'll have to pay out for a PODE report. I'm not trying to avoid the courts and absolutely hope to agree and get a consent order, but just to minimise the risk of a judge disagreeing with what we agree and having to pay more. I'm not trying to be tight, but the law seems to add insult to injury, where I've grafted so hard for 30 years and sacrificed so much compared to someone who has always taken the easy option, been very happy to be a parasite and mismanaged their own part of the finances, but they can then just walk away with so much. Wish I had been more knowledgeable before marrying.

Good luck and I hope it works out as good as possible for you.  Unfortunately for situations like this, the law in this country (and many others) operates on no fault basis, so in situations where one partner has been very sensible with money and the other one, not so much, it doesn't matter - the starting point is 50/50 and it gets adapted from there.  The only exceptions would be if it was proved that one or other of them deliberately threw money away or changed their behaviour in an "out of character" way, in order to distort the divorce settlement.  If they have always been like that, the law takes the view that you knew that when you married them (which is often not the case in real life).

As I noted in my previous reply though, if some of the money is to be given over as cash rather than as a pension sharing type arrangement, the cash part would normally be reduced to allow for tax already paid.

Pipthecat

I would have to borrow the £100k for option a, paying interest. 

How much interest are we talking, I assume this would be a remortgage?  I'm struggling with the idea that the pension would outperform the costs of the loan and the risks associated with interest rate changes or not being able to pay it back for any reason.

I'm also assuming the cash figure you agree on is fair amount representing both of you getting an equal share of your combined pensions positions.  I got stiffed in my divorce.

Minky123lala

Pipthecat said:

I would have to borrow the £100k for option a, paying interest. 

How much interest are we talking, I assume this would be a remortgage?  I'm struggling with the idea that the pension would outperform the costs of the loan and the risks associated with interest rate changes or not being able to pay it back for any reason.

I'm also assuming the cash figure you agree on is fair amount representing both of you getting an equal share of your combined pensions positions.  I got stiffed in my divorce.

Hi Pipthecat,
Thanks for replying.  
I estimated about £46k on £100k. I would probably borrow this from a family member at the same terms (4.22% FR for 3 years and then SVR for 10years, repaying monthly) as the remortgage I am also doing towards buying him out of the house. 

I'm struggling with the same thoughts - I tried to do some maths to compare cash vs PSO for the whole £187,500, and think the pension growth part is the key factor. At 4% over the 13 years I'd be borrowing, either option is going to cost me additionally another c.£87k, if the pension growth is above 4% then cash is the better option, if below then PSO is the better option :

what I may 'lose' by PSO £187,500.00 pension PSO 124701 pension growth? (4% pa compound interest)      what I may 'save' by PSO 37500 tax when my pension is paid (@20%) -87201 net loss £187,500.00 cash 87096.77 interest (based on 4.22% for first 3 years and then SVR for 10 yrs)

I saw from Pension Bee Data that in last 5years that average pension growth has been above 4% :

8% avg growth for those 30 yrs to retirement age

5% avg growth for those 5 years to retirement age

so that is making me think more cash and less PSO is the better option. Not sure if I have the logic right? All seems like crystal ball gazing?!
Is this the maths you would do?

Thanks.

QrizB

If you've got a DB (final salary) pension, I'm not sure the PensionBee growth figures are going to be particularly helpful? Your DB pension will revalue per the rules of the scheme.

Sarahspangles

Minky123lala said:

I saw from Pension Bee Data that in last 5years that average pension growth has been above 4% :

8% avg growth for those 30 yrs to retirement age

5% avg growth for those 5 years to retirement age

so that is making me think more cash and less PSO is the better option. Not sure if I have the logic right? All seems like crystal ball gazing?!
Is this the maths you would do?

A DB pension doesn’t work like that. There has to be a way to put a value (CETV) on them for scenarios like divorce. But they revalue according to the scheme rules. Mostly to reduce or remove the risk of inflation eating into spending power in retirement.

You really need to look at scenarios now, when your offspring are in higher education, after they leave home, and in retirement. It sounds like you’re/they’re going to get limited support so whatever gets you through and then try to salvage some pension. At least you’re cutting your losses!

Marcon

Minky123lala said:

Pipthecat said:

I would have to borrow the £100k for option a, paying interest. 

How much interest are we talking, I assume this would be a remortgage?  I'm struggling with the idea that the pension would outperform the costs of the loan and the risks associated with interest rate changes or not being able to pay it back for any reason.

I'm also assuming the cash figure you agree on is fair amount representing both of you getting an equal share of your combined pensions positions.  I got stiffed in my divorce.

Hi Pipthecat,
Thanks for replying.  
I estimated about £46k on £100k. I would probably borrow this from a family member at the same terms (4.22% FR for 3 years and then SVR for 10years, repaying monthly) as the remortgage I am also doing towards buying him out of the house. 

I'm struggling with the same thoughts - I tried to do some maths to compare cash vs PSO for the whole £187,500, and think the pension growth part is the key factor. At 4% over the 13 years I'd be borrowing, either option is going to cost me additionally another c.£87k, if the pension growth is above 4% then cash is the better option, if below then PSO is the better option :

what I may 'lose' by PSO £187,500.00 pension PSO 124701 pension growth? (4% pa compound interest)      what I may 'save' by PSO 37500 tax when my pension is paid (@20%) -87201 net loss £187,500.00 cash 87096.77 interest (based on 4.22% for first 3 years and then SVR for 10 yrs)

I saw from Pension Bee Data that in last 5years that average pension growth has been above 4% :

8% avg growth for those 30 yrs to retirement age

5% avg growth for those 5 years to retirement age

so that is making me think more cash and less PSO is the better option. Not sure if I have the logic right? All seems like crystal ball gazing?!
Is this the maths you would do?

Thanks.

You and your ex seem to be treating a DB pension as 'behaving' in the same way as his DC pension. It doesn't. Dealing with a DC pension is relatively straightforward. The key piece of information is 'How much is in the pot?'.

DB pensions are in their own strange little world. Be aware that the usual treatment where a PSO is granted is for the court to award a %age of the CETV - and you also need to be aware that the CETV used for that purpose will be recalculated at the time the PSO is implemented. It could be higher or lower, depending on market factors, so plenty of scope for utter confusion and bafflement!

Are you sure it's a good idea to proceed without specialist help? There are some big numbers involved here, and your financial future - and that of your children - is at stake.

Cobbler_tone

My CETV was £625k during mediation, £675k in the consent order, £550k by the time of the divorce, £450k the following year and £430k this year. You could say 'wooden dollars' IF you are trying to retain 100% of your pension (as it has guaranteed benefits regardless of the CETV) but definitely more relative if it is being used to divvy up your assets. I guess mine was (indirectly) but I was only ever interested in keeping 100% of my pension whilst giving up literally everything else....and then some! Considering the whole process took over 5 years, I had no energy or inclination to start revisiting the ever moving DB CETV values. I guess I may have been able to challenge some of the "and then some" but I had accounted for that by then.
You will only ever get them from a moment in time. If you are lucky you will get one per year FOC and then have to stump up for subsequent ones. 

Bostonerimus1

IMO you need to get advice from a financial expert who knows about divorces and your solicitor should be helping. Splitting things like houses, investment accounts and DC pensions are quite easy as they can be valued at the point of their distribution. A DB pension is not like that as it depends on lifetime earnings and how long you’ve worked. It will have a CETV so that’s where you need the advice. One bit of advice I would give you is forget about your net worth as a married person as it will go down by more than half after the martial assets are split and you have paid all the costs involved in divorce. 

I’ve been divorced for 25 years and I was very lucky as me and my ex didn’t argue about money and she wasn’t interested in our DC pensions, despite me and her lawyer encouraging her to take 50% of them. It was maybe 50k back then, but it’s obviously grown a lot. We didn’t have any children which made things easier and we split the house sale proceeds, bank accounts and investment accounts 50/50. For household stuff we flipped a coin and then just alternately chose what we wanted. I’ve left the DC pension from back then in a separate account and still have my ex as the primary beneficiary, it sort of seems fair. But it’s important to reset your finances post divorce and accept your new circumstances and I would also try to avoid borrowing money in any settlement

Marcon

Minky123lala said:

flaneurs_lobster said:

And your solicitors view?

anything better than 50/50 would be a win looking at the whole picture. He could not give specific advice on this pension offsetting vs PSO as he is not a pension expert

Just checking, although I'd sincerely hope your solicitor has already asked the question (he wouldn't need to be a pension expert to do so) - your DB pension is a funded scheme (public or private sector), rather than an unfunded public sector scheme? 

Minky123lala

Marcon said:

Minky123lala said:

flaneurs_lobster said:

And your solicitors view?

anything better than 50/50 would be a win looking at the whole picture. He could not give specific advice on this pension offsetting vs PSO as he is not a pension expert

Just checking, although I'd sincerely hope your solicitor has already asked the question (he wouldn't need to be a pension expert to do so) - your DB pension is a funded scheme (public or private sector), rather than an unfunded public sector scheme? 

Hi Marcon,
I checked this, it's a funded private sector scheme. 
Many thanks