Following a decision to make changes to public sector pension schemes, HM Treasury has instructed that all public sector pension schemes are to suspend providing cash equivalent values. This is to enable to Government Actuary’s Department to review the factors considered in calculating a cash equivalent value.
What is a cash equivalent value?
A cash equivalent value or CEV of a pension scheme is an estimate of the amount that the current scheme would offer if you chose to move the pension from its current scheme into a new one.
This is not a cash lump sum that would be payable from a pension scheme.
What is a public sector pension scheme?
A public sector pension can mean any scheme that is funded by the taxpayer. These include but are not limited to:
1. NHS workers
3. Fire Service
4. Civil Service pensions
These pensions are commonly defined benefit pension schemes, which are usually more generous than a private sector pension schemes.
Why is this important in matrimonial finances?
Along with the family home, pensions are usually the largest asset that there is in a marriage. It is therefore crucial that an accurate value is afforded to any scheme to ensure that any division of the matrimonial finances is fair.
Solicitors use the CEV of a pension to consider its value as a matrimonial asset in considering a split of the matrimonial “pot”.
When considering division of matrimonial finances, the Court firstly considers the needs of the parties. If the needs of the parties are met, then the Court will consider equally sharing the matrimonial assets, unless there is a reason not to do so.
Most divorce cases when it comes to pensions are needs cases, unless it is a big money case.
To achieve a fair outcome which meets the needs of both parties, the Court will consider sharing the pensions to achieve either: -
1. an equalisation of pension income (i.e ensuring the income that you receive on retirement is the same): or
2. an equalisation of pension capital (i.e ensuing that your pension pots are the same value)
When considering which of these options is appropriate, the Court will use the CEV of any pension scheme to evaluate which would be the best option to meet the needs of the parties. A solicitor will similarly consider this when negotiating the settlement of the matrimonial finances outside of the Court process.
What does this mean to me?
If you or your spouse has a public sector pension this means delay!
CEVs are essential to have an accurate valuation of a pension benefit. Without this, it will not be possible to provide a realistic estimate of the pension scheme and the outcome of any pension share that you may be entitled to. As there has been no indication how long the Government Actuary’s Department will take, we do not currently know how long the suspension will be for.
How we can help
It is still possible to continue to progress the matrimonial finances whilst the suspension of public sector CEVs is in place. A pension actuary during the divorce process is important and can help to sidestep these delays. A pension actuary can use previous CEVs and using their experience, can consider the factors which will be assumed in calculating a new CEV and provide a report about a Pension Sharing Order.
Pensions are a complicated and often overlooked matrimonial asset.
Instructing a solicitor to guide you through the process ensures that you are fully informed about the next steps and any claims you may have. You also have the benefit of the experts that your solicitor has used, ensuring that your case is dealt with by experienced professionals.
Our experienced, specialist team of family lawyers can help answer any queries that you may have regarding matrimonial finances on divorce.