Divorce - PSO or cash or mix

Pat38493

Minky123lala said:

Pat38493 said:

Minky123lala said:

Hi All,
Thanks for the comments so far - really appreciate.

So I've spoken to my pension admin and tried to understand a bit more about DB pension growth and have adjusted my calculations as follows

PSO 187500 amount of pension husband wants

         622745 CETV

         30.11% % of CETV

         90978 Pension forecast - pa at 65

         63594 Revised pension forecast if PSO pension debit was 30.1%

         27384 'lost' pension pa 

         821531 'lost' pension over 30 years (65 to 95)

         24646 'lost' pension growth  (2 years 95-97 GMP @ 3.25%), (12 years 97-2009 CPI capped 5%), 2009 onwards                       CPI capped 2.5%, - say 3% avg across 30 years

         592324 'loss' to me of PSO (lost pension and pension growth over 30 years retirement reduced for tax I would                              have to pay (@30%, 40% of 75%)

Cash 187500 cash

           87097 interest borrowing 187500 over 13 years repayment c.1500 pm 4.22%

           274597 'loss' to me of giving cash 

does this comparison make sense?  appreciate any thoughts.  I'm obviously thinking cash offsetting is a better option, hopefully I'll live to 95 to see the income and give it to my children (minimising IHT along the way)!

At first glance, it looks to me like your pension forecast at 65 has been adjusted forward for future estimated inflation, and you are then comparing that with a cash calculation in today's money - so it's not an apples to apples comparison?  Otherwise I'm not seeing how a pension with a CETV of 622K could be paying out £90K per year.

Also as previously mentioned, normally if you are giving cash instead of pension in a divorce the cash payment is adjusted downwards because that cash was already taxed on your side.

Pat,
Thanks.  Yes I think teh £91k forecast at 65 probably does include estimated inflation, so perhaps a double count on th e £24.6k 'lost growth', but doesn't make a massive difference to the final figure for PSO.   Yes the CETV value is as of now, and the accrued pension is £56k pa.

Re. adjusting cash value downwards, my STBXH won’t accept a reduction for tax or utility – as he would take 25% tax free at 55 next year and want to invest the rest in a pension anyway.  

Would you do the cash option if in my shoes?
Thanks

If you can get away with giving "only" £187500 based on your overall net worth, either options would be pretty good, since I suspect that if there were solicitors and courts involved in the whole process, and your ex took their advice, you would end up having to give a lot more.  This is assuming that ex is willing to sign an clean break agreement at that time.

In a typical divorce process, it's not really up to him to say that he "won't accept" a reduction as an actuary would be involved and he would be given a choice x amount pension or x-y amount cash.  He cannot just insist on X amount of cash.  However, if he is willing to accept that amount in cash, and the court is willing to sign off on it to create a complete clean break, it is probably a good deal.

Also - you don't know how much it would cost to split the pension - usually there are pretty hefty charges from the administrators to do the split.

Also it partly depends on other factors, like when you want to retire yourself - I would hesitate to go into retirement with a large loan uncleared.

Further - given the size of pension you are saying you will have, even if some of it is shared out, you will be a 40% tax payer in retirement and this might possibly swing the pendulum in favour of pension sharing in order to reduce the amount of 40% tax you pay later.

To be honest, based on the amount of assets you have an what is at risk, you would really benefit from getting an financial planner to run through it all and create some cash flow scenarios on how it might work out long term.  It might be money well spent.

Cobbler_tone

Minky123lala said:

Cobbler_tone said:

sgx2000 said:

The divorce laws in the uk are ridiculous......

In a business partnership if one partner puts in 80% and the other 20%
They dont split it 50/50 when the business disolves....

You're talking my language!
I firmly believe that it will change at some point and future generations will look back in horror.

My favourite quip is "what did they bring to the party?"

BTW if you come away with 50/50 you are doing well! Pre and post nups are becoming more common.

In terms of this case, if the cash can be bumped up I'd retain more of the pension for future security but that is based on lived experience and appreciate every circumstance is different.

Thanks Cobbler_tone

Fully agree. 

Thanks for the 'lived experience' pov, adds weight to the calculation. Did you do a similar calculation?
Do you think my calculations are logical or have some kind of flaw?

Thanks

I think you have done more than enough in terms of calculation.
I approached it slightly differently. Because my ex never would have got much of a mortgage (on around £12k a year with no accountability to increase her earnings) I aimed to insure the children had one roof mortgage free.
Then my only motivation is what additional cash I needed to add to retain 100% of my pension.
I didn’t go in what cash was worth compared to a CETV. I cleared the mortgage and haggled on cash on top. I gave her everything I had other than my pension. Splitting the pension wouldn’t have worked for our situation.

It took over 5 years and about £6k in legal fees for me, without going through a court case.
I guess arguably I may have stumped up about £60k in cash I didn’t have to but bigger picture it got the result. On paper she got more, depending how you value my pension. She’ll be worse off because she has made no effort to increase her earnings potential. She might now the UC’s start drying up, not my concern.

I now contribute 37% to my pension, aim to retire at 58 and may/may not buy another property at some point.
Most importantly the ‘kids’ are doing well at uni and I have never been so happy.

Cobbler_tone

Hoenir said:

Cobbler_tone said:

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. 

The amount of "pension" the sum of money that this could have bought remains relatively unchanged though. The inherent danger with not understanding the far bigger picture. 

Hoenir said:

Cobbler_tone said:

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. 

The amount of "pension" the sum of money that this could have bought remains relatively unchanged though. The inherent danger with not understanding the far bigger picture. 

True but it matters when it is entered on a consent order. I know a judge who will tell you that. 

Marcon

Pat38493 said:

Minky123lala said:

Pat38493 said:

Minky123lala said:

Hi All,
Thanks for the comments so far - really appreciate.

So I've spoken to my pension admin and tried to understand a bit more about DB pension growth and have adjusted my calculations as follows

PSO 187500 amount of pension husband wants

         622745 CETV

         30.11% % of CETV

         90978 Pension forecast - pa at 65

         63594 Revised pension forecast if PSO pension debit was 30.1%

         27384 'lost' pension pa 

         821531 'lost' pension over 30 years (65 to 95)

         24646 'lost' pension growth  (2 years 95-97 GMP @ 3.25%), (12 years 97-2009 CPI capped 5%), 2009 onwards                       CPI capped 2.5%, - say 3% avg across 30 years

         592324 'loss' to me of PSO (lost pension and pension growth over 30 years retirement reduced for tax I would                              have to pay (@30%, 40% of 75%)

Cash 187500 cash

           87097 interest borrowing 187500 over 13 years repayment c.1500 pm 4.22%

           274597 'loss' to me of giving cash 

does this comparison make sense?  appreciate any thoughts.  I'm obviously thinking cash offsetting is a better option, hopefully I'll live to 95 to see the income and give it to my children (minimising IHT along the way)!

At first glance, it looks to me like your pension forecast at 65 has been adjusted forward for future estimated inflation, and you are then comparing that with a cash calculation in today's money - so it's not an apples to apples comparison?  Otherwise I'm not seeing how a pension with a CETV of 622K could be paying out £90K per year.

Also as previously mentioned, normally if you are giving cash instead of pension in a divorce the cash payment is adjusted downwards because that cash was already taxed on your side.

Pat,
Thanks.  Yes I think teh £91k forecast at 65 probably does include estimated inflation, so perhaps a double count on th e £24.6k 'lost growth', but doesn't make a massive difference to the final figure for PSO.   Yes the CETV value is as of now, and the accrued pension is £56k pa.

Re. adjusting cash value downwards, my STBXH won’t accept a reduction for tax or utility – as he would take 25% tax free at 55 next year and want to invest the rest in a pension anyway.  

Would you do the cash option if in my shoes?
Thanks

Also - you don't know how much it would cost to split the pension - usually there are pretty hefty charges from the administrators to do the split.

That's easy enough to find out. The administrators will be able to provide that information on request, or https://www.plsa.co.uk/Portals/0/Documents/Policy-Documents/2023/PLSA-pension-sharing-on-divorce-guidance.pdf gives recommendations about charges, which many schemes follow.

Minky123lala

Marcon said:

Pat38493 said:

Minky123lala said:

Pat38493 said:

Minky123lala said:

Hi All,
Thanks for the comments so far - really appreciate.

So I've spoken to my pension admin and tried to understand a bit more about DB pension growth and have adjusted my calculations as follows

PSO 187500 amount of pension husband wants

         622745 CETV

         30.11% % of CETV

         90978 Pension forecast - pa at 65

         63594 Revised pension forecast if PSO pension debit was 30.1%

         27384 'lost' pension pa 

         821531 'lost' pension over 30 years (65 to 95)

         24646 'lost' pension growth  (2 years 95-97 GMP @ 3.25%), (12 years 97-2009 CPI capped 5%), 2009 onwards                       CPI capped 2.5%, - say 3% avg across 30 years

         592324 'loss' to me of PSO (lost pension and pension growth over 30 years retirement reduced for tax I would                              have to pay (@30%, 40% of 75%)

Cash 187500 cash

           87097 interest borrowing 187500 over 13 years repayment c.1500 pm 4.22%

           274597 'loss' to me of giving cash 

does this comparison make sense?  appreciate any thoughts.  I'm obviously thinking cash offsetting is a better option, hopefully I'll live to 95 to see the income and give it to my children (minimising IHT along the way)!

At first glance, it looks to me like your pension forecast at 65 has been adjusted forward for future estimated inflation, and you are then comparing that with a cash calculation in today's money - so it's not an apples to apples comparison?  Otherwise I'm not seeing how a pension with a CETV of 622K could be paying out £90K per year.

Also as previously mentioned, normally if you are giving cash instead of pension in a divorce the cash payment is adjusted downwards because that cash was already taxed on your side.

Pat,
Thanks.  Yes I think teh £91k forecast at 65 probably does include estimated inflation, so perhaps a double count on th e £24.6k 'lost growth', but doesn't make a massive difference to the final figure for PSO.   Yes the CETV value is as of now, and the accrued pension is £56k pa.

Re. adjusting cash value downwards, my STBXH won’t accept a reduction for tax or utility – as he would take 25% tax free at 55 next year and want to invest the rest in a pension anyway.  

Would you do the cash option if in my shoes?
Thanks

Also - you don't know how much it would cost to split the pension - usually there are pretty hefty charges from the administrators to do the split.

That's easy enough to find out. The administrators will be able to provide that information on request, or https://www.plsa.co.uk/Portals/0/Documents/Policy-Documents/2023/PLSA-pension-sharing-on-divorce-guidance.pdf gives recommendations about charges, which many schemes follow.

Thanks - fee is £1350+VAT

Bostonerimus1

Cobbler_tone said:

sgx2000 said:

The divorce laws in the uk are ridiculous......

In a business partnership if one partner puts in 80% and the other 20%
They dont split it 50/50 when the business disolves....

You're talking my language!
I firmly believe that it will change at some point and future generations will look back in horror.

My favourite quip is "what did they bring to the party?"

BTW if you come away with 50/50 you are doing well! Pre and post nups are becoming more common.

In terms of this case, if the cash can be bumped up I'd retain more of the pension for future security but that is based on lived experience and appreciate every circumstance is different.

Marriage isn't a business. Don't dwell on finances when divorcing as there are often more meaningful and serious  issues involved. Come up with a settlement, don't argue about trifling amounts and move on. If there are children involved it's vital to keep a civil relationship with your ex as a modified family still exists for them after divorce.

Minky123lala

Pat38493 said:

Minky123lala said:

Pat38493 said:

Minky123lala said:

Hi All,
Thanks for the comments so far - really appreciate.

So I've spoken to my pension admin and tried to understand a bit more about DB pension growth and have adjusted my calculations as follows

PSO 187500 amount of pension husband wants

         622745 CETV

         30.11% % of CETV

         90978 Pension forecast - pa at 65

         63594 Revised pension forecast if PSO pension debit was 30.1%

         27384 'lost' pension pa 

         821531 'lost' pension over 30 years (65 to 95)

         24646 'lost' pension growth  (2 years 95-97 GMP @ 3.25%), (12 years 97-2009 CPI capped 5%), 2009 onwards                       CPI capped 2.5%, - say 3% avg across 30 years

         592324 'loss' to me of PSO (lost pension and pension growth over 30 years retirement reduced for tax I would                              have to pay (@30%, 40% of 75%)

Cash 187500 cash

           87097 interest borrowing 187500 over 13 years repayment c.1500 pm 4.22%

           274597 'loss' to me of giving cash 

does this comparison make sense?  appreciate any thoughts.  I'm obviously thinking cash offsetting is a better option, hopefully I'll live to 95 to see the income and give it to my children (minimising IHT along the way)!

At first glance, it looks to me like your pension forecast at 65 has been adjusted forward for future estimated inflation, and you are then comparing that with a cash calculation in today's money - so it's not an apples to apples comparison?  Otherwise I'm not seeing how a pension with a CETV of 622K could be paying out £90K per year.

Also as previously mentioned, normally if you are giving cash instead of pension in a divorce the cash payment is adjusted downwards because that cash was already taxed on your side.

Pat,
Thanks.  Yes I think teh £91k forecast at 65 probably does include estimated inflation, so perhaps a double count on th e £24.6k 'lost growth', but doesn't make a massive difference to the final figure for PSO.   Yes the CETV value is as of now, and the accrued pension is £56k pa.

Re. adjusting cash value downwards, my STBXH won’t accept a reduction for tax or utility – as he would take 25% tax free at 55 next year and want to invest the rest in a pension anyway.  

Would you do the cash option if in my shoes?
Thanks

If you can get away with giving "only" £187500 based on your overall net worth, either options would be pretty good, since I suspect that if there were solicitors and courts involved in the whole process, and your ex took their advice, you would end up having to give a lot more.  This is assuming that ex is willing to sign an clean break agreement at that time.

In a typical divorce process, it's not really up to him to say that he "won't accept" a reduction as an actuary would be involved and he would be given a choice x amount pension or x-y amount cash.  He cannot just insist on X amount of cash.  However, if he is willing to accept that amount in cash, and the court is willing to sign off on it to create a complete clean break, it is probably a good deal.

Also - you don't know how much it would cost to split the pension - usually there are pretty hefty charges from the administrators to do the split.

Also it partly depends on other factors, like when you want to retire yourself - I would hesitate to go into retirement with a large loan uncleared.

Further - given the size of pension you are saying you will have, even if some of it is shared out, you will be a 40% tax payer in retirement and this might possibly swing the pendulum in favour of pension sharing in order to reduce the amount of 40% tax you pay later.

To be honest, based on the amount of assets you have an what is at risk, you would really benefit from getting an financial planner to run through it all and create some cash flow scenarios on how it might work out long term.  It might be money well spent.

Pat - thanks, yes I think I'm coming to the cash option to avoid having to fight it out and end up paying more.

I'm hoping I'd retire around 60 and have cleared the debt by then, perhaps by an investment coming good,or a redundancy package, or consultancy side job.

I'd adjusted for tax in the final total on the PSO - hope I've done that correctly.

Yes, think will have to pay a bit for a 'shadow PODE' or financial adviser, thanks.

Cobbler_tone

Bostonerimus1 said:

Cobbler_tone said:

sgx2000 said:

The divorce laws in the uk are ridiculous......

In a business partnership if one partner puts in 80% and the other 20%
They dont split it 50/50 when the business disolves....

You're talking my language!
I firmly believe that it will change at some point and future generations will look back in horror.

My favourite quip is "what did they bring to the party?"

BTW if you come away with 50/50 you are doing well! Pre and post nups are becoming more common.

In terms of this case, if the cash can be bumped up I'd retain more of the pension for future security but that is based on lived experience and appreciate every circumstance is different.

Marriage isn't a business. Don't dwell on finances when divorcing as there are often more meaningful and serious  issues involved. Come up with a settlement, don't argue about trifling amounts and move on. If there are children involved it's vital to keep a civil relationship with your ex as a modified family still exists for them after divorce.

In an ideal world. You will see in my example I certainly didn't and the priority was securing a home, in fact I funded two for 5 years+. My conscious is totally clear and I know for a fact if it was left totally in the hands of solicitors and courts then both of us, and most importantly the children, would have been worse off.
Unfortunately a 'civil relationship' isn't always possible for a myriad of reasons. In many cases if it was then people wouldn't get divorced. It is certainly easier (and more cost effective) not to!
Totally on board for joint accountability and the days of entitlement for bearing children belong in the dark ages.

Take kids out of the equation for a second. Ant McPartlin handed over £31m (of his £50m) and the house. I wonder if that was fair and that they are amicable? Probably didn't have to worry about pension sharing....

IMO marriage is now an antiquated union. No coincidence that prenups are on the rise, especially with second marriages if people are that way inclined.