how to count pension in 20+ years time?

Amanda,

I disagree.

Firstly it is not the law that pensions should be reduced. Full stop.

Second when an actuary calculates a value for a pension, a CETV or an appropriate value for use in a divorce, then we have already discounted to produce a value NOW. For a solicitor to multiple our value by 25% is to discount twice. It is wrong.

Arbitrarily multiplying a pension value by 25% may have evolved into a common practice, that does not make it right. It developed from a false premise and is costing thousands of non-pension holders, usually wives, an awful lot of money.

Hi guys,

One thing that strikes me is that neither the legal nor the actuarial value of a pension is actually a true reflection on an individual's personal valuation of the pension.

My divorce was recently settled leaving me with a pension with CETV of 150K as my only asset, and my ex with full ownership of the car, the house and everything in it.

Problem is I have debts of 25k and needs such as putting a deposit on a house and a car, and investing in a business and other projects.

So - in my current circumstances - if i was able, i would very gladly trade my 150k CETV pension for around 50K to 80K.

I could do a whole lot with 50K or 80K - i can do nothing with a pension.

Now if i had no debts, a nice house and car and a high paying job - I would much prefer to keep the pension intact to get full benefit at old age.

So here is the thing - how does the law or the actuarial process take account of my individual circumstances, my needs, my plans? It doesn't seem to.

information on offsetting is interesting. i am struggling
to get solicitors t0 give any advice on this despite divorce going on now for 12 months.

From infor gained on this site i hope for 70/30 split on house and wish to offsett his £95.000 cetv against rest.

Don't understand 25% reduction - is this used. Also do not understand tonights comments that cetv is already reduced. Also is age a factor in split - my husband is now 58 and iam 50 - does this mean increased ratio for me as he is nearing retirement.

Inlimbo

Valuing a final salary pension made simple.

Pension will be, say, £1,000 per month from age 60 for someone now aged 50.

An actuary values the first payment of £1,000 when aged 60 as £1,000 reduced by, say, 5%pa as its payable 10 years in the future (= 61.14%)and say 94% whilst is the probability of living to age 60. So the value of the first payment is £1,000 x 61.14% x 94% = £577.

The next payment in 10 years and 1 month is slightly lower as there is one month's extra discounting and another month to survive. So its value is £570.

This is continued for another 60 years and then all the monthly values are added up to get the pension value (CETV).

So the actuary has already discounted for the payment not being made until the future.

What happens is that often in a settlement the pension value is the reuced again by multiplying it again by an arbitrary 25%. Double discounting.

Hope this helps.

I knew those mathmatical models were easy

Nigel

I never said it was law that pensions should be reduced.

I said it is law to offset them at a discounted value, which it is.

It is a fact that courts do, and will continue, to discount a CETV when offsetting, until there is a change in that law, which frankly I can not see happening during my career.

I think that on offsetting, you need to make clear what is the current practice and what is your opinion, otherwise you run the risk of people mistaking your opinion for practice and holding out for a result that no court would ever order.

Amanda

Nigel,

I don't see it as double discounting, rather 2 stages of discounting:

Stage 1: Financially adjusting for "future value" :

1) Inflation (£1 today being worth more than £1 in future)
2) Chances of survival

But it doesn't account for the fact a pension is tied up for 25 years. Severely limiting its real "value" to the individual. Quite simply - you cannot spend it.

So you need...

Stage 2: Determining the individuals immediate need for cash today.

To me personally £1 CETV is worth much less than £1 cash.

- I can spend cash on immediate needs such as a house deposit.

- I can use cash to pay off debts that are on 17% interest rates far higher than 5% pa. My 25K debt could cost me 50K eventually to pay off. Would be so much better to have the cash now to pay it off in full.

- I can invest cash in a high growth (perhaps internet ) business

If I am prepared to sell my pension for 80k (and by the way if anyone knows if there is a way I can do this - please let me know) then it isnt worth its 150K to me whatever the CETV says.


Another way to view this is to bypass the whole future discounting thing.

Imagine if you were offered 150K cash or 150K in a building society account paying 5% that you could not access until you were 65.

They just aren't equivalent.
=> The 150K cash offers freedom, options, choices - now - today.
=> The 150K tied up in the building society account offers some security of a comfortable old age.