how to count pension in 20+ years time?

CETV are being latched onto because nothing else exists to value a pension.

Actually the one thing which is certain is the rules refer to ss 93-101 Pension Schemes Act 1993 which states the CETV is the method of calculation. Before Maskell the CETV was lumped in with all the other assets and divided up in whatever proportions seemed right. It might have been a bit crude but at least everyone knew where they stood.


if the couple are in their 50s the pension could be taken at a reduced rate anyway . Am I right to assume that there would be less of a reduction than for a younger couple. How much less ? does anyone know ?

That would be a correct assumption for offsetting but it would depend on the individual circumstances such as whether the pension is about to be or is in payment, discrepancies in age etc

This is turning out to be a cracking forum - though I fear for those sitting at their solicitor's desks today it has more questions than answers. So I'll try and do a bit of summarising.

1. The comment was made that "CETV are being latched onto because nothing else exists to value a pension". This is not true, an appropriate actuarial valuation for divorce can be done. We do, including through Wiki, as do other actuarial providers.

2. A CETV or an appropriate actuarial valuation for divorce already allows for discounting (reducing) the value to allow for the fact that pensions are not paid until the future.

3. An appropriate actuarial valuation will, unless it specifies otherwise, be the market value for the pension.

4. Historically the pension value was added to other assets and then the total divided up.

5. Post the Manskell judgement a tradition of reducing the pension value to 25% or less of its value developed. A number of the arguments of why this generalisation from a very specific case is wrong have been stated in this forum. It should be noted that there are some counter-arguments that try and justify the 25% factor.

6. No specific law or other cases have been stated to justify the 25% reduction.

7. It has been pointed that many times a party will be willing to accept a different value to the market value for a pension (or indeed any asset). If agreeable between the parties then this seems the best solution, but I think it would be hard for a judge to vary from market value without the parties agreeing.

8. The theory behind accepting a different value to market is utility theory. Thought how this can be implemented practically in all cases, without the better "trader" between the two parties getting the better deal is a problem I've failed to solve.

9. I stick to my opening remark that in most cases arbirarily reducing the value of a pension to 25% of its value is wrong.

Nigel

9. I stick to my opening remark that in most cases arbirarily reducing the value of a pension to 25% of its value is wrong.

In your view, is it equally clear that (even where the H and W are both under 40) you should include 100% of pension value?

Just to remind us what Divorcelawyer said about the legal standpoint:
"Off-setting at a reduced value is perfectly valid and often undertaken exercise. Like I say the law is the law.
And I have to say - this one is one I agree with on the basis that to offset say at 45 at the whole value of the pension would leave the pension holder with a very bitter taste in his or her mouth.
A future asset can never be valued at the same pound for pound rate as an asset available today, hence off setting at a discount."
What we don't know is how these reduced values are calculated and applied to offsetting deals.
There are very few WRPA 1999 pension shares compared to the number of divorces - offsetting might still be the regular pension remedy?

Lincolnshiremum,

Yes it is my view that whatever the age of the parties that the full value of the pension should be used. For younger people the discounting built into the pension value calculation will have significantly reduced the value of the pension already.

(Any people reading from the end of the forum back, note that there is a practice amongst solictors to further discount the pension: a practice I am disagreeing with).

For a fuller de­script­ion on my views please refer to my article on http://www.ancillaryactuary.co.uk.

To pick up on Divorcelawyer's comment that Maggie has repeated that to offset say at 45 at the whole value of the pension would leave the pension holder with a very bitter taste in his or her mouth I make 2 points.

1. The pension value is already discounted for time to payment.

2. If you don't want the whole value of the pension you should look to share it. As Maggie comments this is still not common, but sharing a pension that neither side wants in full seems better to me than pretending its not very important.

Some reasons why discounting works:
1. Age. Often one party is older than the other. Infact very common for husband to be 5 to 10 years older. If wife is 40 and husband is 50, husband has 15 years to rebuild pension after split to state retirement age. Wife has 26 years (yes that is right pending legislation moves state retirement age for a 40 year old woman or man to 66) to build pension. Courts are so worried about equality that it is easier to say offsetting at a discount rather being 'fair' and saying should be a reduced split (departure from equality) due to age differential.

2. Tax. Nigel you yourself have stated this many times. £100,000 of pension only needs £60k in cash.

3. Inheritance. Pensions expire upon death, you can pass on cash, you can't pass on a pension.

4. Utility. Asset rich people go bankrupt because it is 'all on paper' not in cash.

5. Wealth destruction. If sharing results in a reduced result (the sum of the two is worth less than the whole), then that reduced result should be taken into account in an award to recipient otherwise payer is paying twice.

6. Personal preference. The question is, At what price will you sell me back my pension rights? Invariably people will sell at a discount for cash so it creates a market norm.

7. Keeping a roof over the kids head, avoiding mesher, retaining fairness. By discounting an incentive is creating for a pension holder to in effect give up a greater share of the fmh if that is where kids are going to stay. But why would anyone do that voluntarily? Forget the kids are priority rule, we are talking financial matter here.

8. Risk. What if the pension fund collapses.

The discount by multiplying by 25% seems steep to me. The reason it has become the norm is probably as confused as the original view that CETV was a true cash equivalent when infact it was the PV of an intangible stream ­base­d on unknown interest/investment rates and risk profiles and an actuarial view of longevity.

Am not around today - but will do a long summary as to the legal position tomorrow