Pensions? How Boring…
Tell that to the thousands of public sector workers marching past my office window in Brighton today telling Mr Osbourne that they do not want to work longer for much smaller pensions. They seemed very excited about it all. As a divorce finance solicitor I get very exercised about pensions, especially when it comes to carving them up during a divorce.
As most readers of this blog will be aware by now, it is possible within the financial proceedings arising out of divorce or civil partnership dissolution to split a pension fund. But first, you have to obtain a value of the pension fund, what is called the capital equivalent value – CEV – (or capital benefit value if the pension is in payment). This is obtained from the pension provider by submitting a Pension Inquiry Form.
The Government, in its March 2011 Budget, announced that they would be devising a new valuation basis for public sector pension schemes.
HM Treasury then released a Guidance Document in October that requires all Public Sector schemes to use a different discount rate for determining Cash Equivalent Transfer Values. So far, so boring, right?
Problem is, the public sector schemes have responded by pressing the pause button on CEV calculations because they first have to change their systems to work out the new values. The knock on effect has seen the implementation of the Pension Sharing Orders (PSO’s) stuck, apparently like the late Walt Disney, in suspended, deep-frozen animation.
The change in the valuation basis has no impact on private sector pensions or state pensions. There is no impact where the divorce settlement is to be based on ear-marking or an offset approach using independent, actuarially calculated Capital Values of the pensions.
Pity the poor divorce lawyers up and down the land trying to get valuations for these public sector schemes in order that their clients can comply with their disclosure obligations to the court. Our old friend, the (dreaded) Form E (financial questionnaire) demands the CEV figure and won’t settle for anything less.
So, I have to wait then?
Yes. If you have just been ordered by the Court to produce a CEV figure on your Form E, then your solicitors should append the last available valuation but make it clear that they are awaiting the revised valuation and it will be forwarded to the court and sent to the other spouse as soon as it is available. A good divorce finance solicitor will be able to obtain independent financial advice for their clients on whether it may be possible to consider an alternative settlement that could involve a full or partial offset approach. That is, offer your spouse a cash lump sum to keep his or her hands off one of your pension funds. But you need specialist financial advice if you are considering this route rather than wait for the public sector pension scheme administrators to get their act together. Don’t forget to ask your solicitor to discuss with your financial adviser the application of a discount on the cash lump sum you should pay (after all, cash in the hand is better than a bird in the bush – if you get my meaning).
But you may be advised to obtain a new valuation under the revised rules, even if there has already been an agreed percentage split in your pension fund. If the court has not approved the settlement yet, it is arguable that the new valuation should be obtained so the true impact of the pension sharing order can be ascertained by the judge. I would even suggest that advice should be sought in circumstances where the court has approved the PSO but it has not yet been implemented. If the difference in the CEV figures before the Government’s guidance paper was issued in October 2011 and after is significant, then legal advice should be sought as to whether the basis of the original PSO has been undermined by the change and whether an appeal (which would normally be out of time) should be sought.