how to count pension in 20+ years time?

maggies post is excellent.

One factor so far not addressed is the split. suppose a 50:50 divorce split is agreed, was the thinking behind the 25% reduction that the first halving (ie reducing CETV to 50%) represented the matrimoinal split of the family pot, the next halving (ie reducing CETV to 25%) the beniefits of cash now Vs pension later?

If this was the thinking, then 25% is fair, but also the CETV should not get added to the family pot before diving it out, what should happen is that all non-pension assets are divvied out then the CETV gets traded against assets afterwards.

How is this done?

Although straying from post title, an option for couples in 50's would surely be to request pension ben's are split and then the person aquiring rights draws the pension early under early retirement rules. Maybe DBM can advise, but it seems to be a fair reduction for lots of schemes, the reduction simply due to fact that benefits start 5yrs early for age55 retirement so get paid for 5 years longer than would otherwise have been case

Maggie makes an important point.

I think the implications of this debate are very serious - Nigel@BDM has said that the nature of the CETV calculation means that the pension CETV has already been reduced/discounted to give a current cash value.

DL has said that for offsetting on divorce the already discounted CETV must then be further discounted by law but hasn't told us which law.

On Monday people will be sitting in court and solicitor's offices apparently being told that if they want to give up their right to split the pension and put their share in their own name they must by law accept a reduced CETV.

Are they being misled?




There is an economists' answer to this in terms of the theory of discounting.
The discount rate that is used to weigh up choices between projects by businesses and government has two elements

- one is about rate of return on that amount of cash invested now - that is the bit that a standard actuarial CETV valuation can do very well, and there is no reason that the courts should have anything more to say about that, unless individual factors such as ill health complicate the equation - in which case, again, a tailored actuarial report and some really good financial advice would be a better option than a court decision

- the other is about the "utility" (usefulness) to the individual/business/society of the choices they have with that money.

ie, someone who has only £10 left in the world would not put it in a 5 year savings account no matter what the interest rate - because if they cannot buy food and water they won't be here to enjoy the return later. One of the earlier posts in this debate gives a perfect example of this - £150k pension pot has a "utility" of only £80-90k to that person.

This "utility" factor is subjective - you can estimate it across the economy as a whole, which gives you an answer in terms of cost benefit analysis for major projects, but only the individual knows what their own utility is.

As none of us can be relied upon to give a straight answer to a question about utility in a negotiation, I guess what the courts should be doing is making a reasonable stab at it, taking account of something between a rule of thumb and a good hard look at individual circumstances.

..... Which is all very well in theory, but I'm still a bit confused from all the (incredibly useful but pretty diverse) posts so far about what generally happens in practice.

way of topic, but the same argument applies to MESHER orders, all well and good getting £50k cash in 10yrs time, but where are you going to live in the interim.

Do the courts allow notional interest to be added to this money? maybe a £20k MESHER could be upscaled by a factor of 4 if a pension can be downscaled like this hehehe

Two opposeing views from two experts and both correct

Actuarys are mathematicians who work with probability useing mathematical models to estimate ( ) the value of a pension after many complex considerations tax life expectancy inflation the list goes on, so they argue the value of the pension is worth pound for pound of a liquid asset.

Barristers in family law have the job of getting the best deal for their client and for many reasons argue the pension is not as valuable pound for pound as a liquid asset that can be utilised now unlike the pension which cannot be sold or cashed in.

The fact is pensions are discounted when assets are divided.

Only my opinion

There is no proper guidance from the courts in how much pension to offset against hard assets and all barristers don't agree. See link to the view of barrister Tom Tyler, 4 Brick Court, below.

The figure of 25% was derived from the case Maskell v Maskell when Thorpe LJ said it was a mistake to confuse present capital with pension benefits on retirement when only 25% maximum could be taken as a lump sum and the other 75 % being taken as an income stream. However, the couple went away and agreed a settlement so no judgement was made and nothing was said about how to deal with the remaining 75% providing the income stream .

http://www.4bc.co.uk/articles/article/ppensions-in-ancillary-reliefp/

One problem with discounting is liquidity isn't fixed with other assets, such as the FMH, and can vary depending on willing buyers and sellers in the market and often only available in rising markets.

I don't do maths - I barely do arithmetic, let alone economics.
But for my ex insisting on my sharing the pension and him getting cash from the family home I could have carried on in my deep financial sleep.
The offsetting route is where my solicitor tried to lead me - I think she thought she understood it - houses and such- whereas pensions were just a deep dark pit of ignorance.
I know that if she had said well of course you won't get your half of the value of the pension as "cash" - how could you possibly expect to swap a pension for the equivalent cash you booby - I would more than likely have accepted it.
It's worrying that no-one has snapped back with the legislation and 50 cases showing not discounting the CETV is a hanging matter.
How many fully-advised women have given up valuable pension rights for a few non-magic beans?