Any experience of valuing a Final Salary type pension for divorce?

[DishingOutDone]

Trying not to need a solicitor - H took early retirement, DCs are 16 and 18, I earn more. We had lump sum and spent it. Now he has a pension currently around £850 a month, indeed linked, for life (obvs I'll lose any access to the widows benefit side of it).

Apparently you need specialist legal advice to split a pension like that, so I'd rather take a larger share of the equity, I reckon at sale we would have £230k in cash. So lets put that on the table: then the pension, currently at £10,200 per annum. He's early 60s, so how many years do I count? 10? 15? Anyway lets say 10 years, £102,000k.

So am I taking an extra £51k out of the equity?

"index linked" that should say!

He should be able to get a pension valuation from the pension provider without using a solicitor, just by asking them. Then you can work out how much extra cash might compensate you for your share.

I think you're aiming low based on my divorce figures, but only have one example to go on.

I think the law differs between if the pension is "in payment" as here or not yet drawn. If not yet drawn you can obtain a specific pension sharing order but not here as he is already getting his pension.

So £850 a month before tax or possibly after tax and presumably he is not working but has a state pension too.

I think at this stage it is just counted like any other income such as your salary in deciding who gets what rather than as a capital asset like an undrawn pension would be.

So he might have to pay some of it each month for say 5 years as spousal maintenance but it is not regarded as a cash asset fora capital distribution.
So if he has 850 pension and you ahve £1000 full time salary then you might be paying him maintenance from your higher salary. Or if he has 850 pension and you have no income hem ight be paying you spousal maintenance probably in each case not for longer than 5 years.

In that case I don't think the fact you or he has this kind of income affects how you divide equity in the house at all.

In my view as you earn more it would be more a uestion of how much spousal maintenance you pay him for a few years and then dividing the house or one of you buying the other out. As yhou earn more your husband might get more than 50% of the house equity.

You need proper advice, there's several ways of dealing with final salary schemes but I'm not sure because it's already taken

Thats very helpful thank you everyone, I can see I am going to need to get advice - interesting that it could be (significantly) different as he is already drawing his final salary pension.

He's not state pension age yet, he's still working part time (hence me earning more than him) so he is earning a small a salary plus his old company pension, and I presume when he fully retires he'll be on state pension plus the company pension.

I was hoping to make it simpler but if I can't have a share of his pension one way or another, that's going to change everything I'd planned.

The fact is it already in payment/ being taken in the material thing - so it is utterly different from the usual pension sharing orders (which anyway are only treated as cash v house equity if both sides agree).

If you can both negotiate you can agree just about anything you like. Eg we agreed my husband's (teacher's so quite good) and my pensions were worth about the same so did not divide them (and then at 55 chose to cash mine in entirely to give to the children for housing and to HMRC for a big tax payment but that was my choice after the divorce as I hope to work until I die anyway). had we divorced and one of us had already taken a pension that would as far as I know just be regarded as an extra income source like dividends paid out on shares every year or a job's salary so goes into the income not capital mix.

However we are not your divorce lawyer so best to pay for at least an hour's advice from a solicitor once they have all the documents an facts in front of them and the above is all based on English law - Scotland is different. I know someone who divorced fairly recently with a pension in payment (and some earned income on both sides) and the judge just treated it as income along with dividends that person got from a company and their salaries rather than some kind of capital asset.

I had a bit of a sleepless night thinking about this - I've been planning to get away for 2 years now but this is a game changer. I was trying to think what I had left out of the OP that might have influenced people saying I had to pay him maintenance and thinking if it was reversed would he need to pay me?

He still works, he's not drawing a state pension, he took early retirement from his main job and has a part time one now. His combined income is around £150 a month less than mine, but as DD is 16 I thought that would be the least I would be able to have to support her - the child benefit just covers her college fares and from the £150 extra I have I pay for everything for her and my own fares.

I do see what you mean though Xenia about it not being a capital asset. It would mean in future he retired on a state pension plus £850 a month or whatever it would be by then and 5 years later I would retire on just the state pension. By the time the house is sold, DD will be 18, if he was then entitled to more than half the equity that's a pretty poor deal. How long would I be expected to pay him maintenance for? It all sound implausible but ....

I've done some more googling and apparently I need an actuary. I looked at the Money Advice website and this then referred me on to the Pensions Advisory Service to book a telephone appointment so this will set me off on the road to the right advice. Incidentally, if anyone else comes across this thread and is asking the same question, apparently a family law solicitor cannot advise on a final salary type scheme pension, it has to be a financial adviser or actuary, both of whom must list this type of pension in divorce under their specialisms.

Sounds expensive eh?

I'm surprised A pension is treated like salary as the pension will last all your life but it's unlikely your salary will as you will retire eventually.
I don't know anything about this - just surprised.

Me too!!

If your ex has already retired and is receiving his pension but you have yet to reach pension age, you can defer the sharing order until you reach retirement age.

From the Moneywise website - it also talks specifically about a pension already being drawn still being part of a settlement:

www.moneywise.co.uk/pensions/manage-pension/divorce-pensions-splitting-assets-when-splitting

Will update once I have had the Pensions Advisory Service telephone appointment but it might be a while. Interestingly the Moneywise article talks about getting an actuary too but says that could cost around £1k?!!!

Though that linke just confirms what I said - that that income from the pension is taken account of, not that it is regarded as a capital asset like a pot of money or house equity.

Actually I have just found what mey be a case which backs up my view that is it just like income from dividends or a house you rent out or your salary once the pension is in payment:
www.professionaladviser.com/ifaonline/news/1351023/pensions-payment-asset-divorce

I suppose now we only get state pension at 67 etc and I will certainly work until I die or almost and we cannot be sacked from jobs on grounds of age any more the idea people stop work and just have pension income is perhaps disappearing a bit anyway but I get your point that a pension in payment is just like income coming in from a buy to let people might have or dividends from shares rather than income from a job you might lose at any moment.

I need to sort this out as my husband is leaving and has a good final salary pension

All pension assets – including any pensions already being paid and benefits that have built up – should be taken into account when fairly dividing finances on divorce. Pension funds can then be split, for example, or the value used to offset against other assets in a settlement. - that's from the Moneywise article.

Really good find on the precedent Xenia I will bring that into the conversation with the adviser.

Although just found out its a case from 2006, and they were splitting up a £3.6 million estate!! I sort of wish I had their problems!

www.telegraph.co.uk/news/uknews/1519441/Wife-forced-to-sell-her-home-to-settle-with-ex-husband.html

OP - you will also need to factor in your pension pot - if you have one. That will be counted as an asset as its not already taken. I think you maybe should think about a solicitor.

Basically you both have to live and pay bills ext. If you've both already had the lump sum that's usually 25% of the pension already gone. If he's not state pension age and the amount he has to live on at present is less than you have to live on I think you would be unlikely to get anything except child maintenance and as a pp has said, if you have more than him you could be required to provide some maintenance for him. Any pension you have already accrued due to your own work will also be taken into consideration.

If you've both already had the lump sum that's usually 25% of the pension already gone - it's not that sort of pension, which is why it looks like I need an actuary.

I'm still a bit confused how I'd have to pay him maintenance from the additional £150 a month I earn, particularly as I'd have to provide everything for our daughter? Those that are suggesting it might happen, has this been your own experience?

Hi @DishingOutDone. I am no legal expert but being a financial advisor I would say that you will probably need advice from an IFA on this. Once the pension is in payment I dont think it is going to be counted as an asset as there is no real capital value yl it as it is purely now an income stream. If it was a personal pension that was in payment, and the pension was a new "flexi-access drawdown" plan then it would still have a capital value & in such cases it would be split, but seeing as your husband has a final salary scheme then there is no "capital value" as such & therefore I dont think it is an asset. If it had yet to be in payment you would usually obtain a CETV (Capital Equivalent Transfer Value) from the scheme's actuaries & then you would be able to look at a pension sharing order. I think you may have to forget this as something that can be added onto the pot for divorce purposes.

Ps. You are talking about assets worth £250k & you dont want to involve a solicitor.....that's madness. You wouldnt buy a house without one so why try and divorce without one. I had a client once who I saw a few years after he divorced without using a solicitor & he had completely screwed himself over. He had agreed that his ex-wife would have half of his pension when he retired rather than half of the value at the time of the divorce. That meant the last 10 years of his ex-working life post divorce he was accruing benefits that his ex was going to benefit from. It cost him in excess of £10kpa.....all to save a few thousand on solicitor costs.

I don’t advise on how the value of a pension is used in divorces but am involved in calculating the value of the pension. We do these even once in payment, specifically for divorces. Definitely worth getting advice on this. It can be different to a salary type income stream because it is guaranteed for life. If it is index linked, the factor will be much higher than 10, more like 25 ( but depends on the age and type of indexing and many other factors) .

I doubt there will be any maintenance payable for either of you given the age of your kids and the closeness of incomes- however I’m not a lawyer - just been through a horrendous divorce! I would get this checked

I'm afraid the advice you've received above is inaccurate.

A pension in payment can be shared.

How much you get might be affected if there is an age difference. If you expect to have a few more years in work to build up your pension you may get less than half.

You should not go to an IFA. You should go to an actuary. There are many that do court reports.

A final salary pension is hard to value. Your husband can get a transfer value from the pension trustees/administrators. Only an actuary can tell you what percentage you would need to get to equalise pension incomes.

If his scheme is unfunded you would only be permitted an internal transfer, so you'd end up with pension rights of your own in that scheme.

You can always go for off-setting, but you need to know the value of pension that you're giving up. If the principle is equality, the off-setting sum will need to look at the money you will need to replicate your husband's pension rights.

You really shouldn't do this without taking proper legal advice. It's a false economy. To illustrate this: a 65 year old would need to invest around £400k in to an annuity to get an income of £10800 index linked.

Good points. However I think you are only then sharing the income as it is already being paid - www.sharingpensions.co.uk/pensharing2.htm so I suppose it is not as easy as before this family took the 25% tax free lump sum at age 55 and used it.

Anhyway as I think we all said above do go and see your own solicitor.

It isn't sharing the income. It's sharing the capital valuation of the right to receive that income. This is a valuation that the pension trustees or administrators get to value in whichever way they want - so the transfer value is usually much less than the actual value of the pension rights.

If you have a few hours spare this recently published report is informative. www.nuffieldfoundation.org/sites/default/files/files/Guide_To_The_Treatment_of_Pensions_on_Divorce-Digital(1).pdf

Thank you again to those contributing - Collaborate you are confirming what I said above, that I need an actuary. Could I also just confirm to some other posters, I have seen a solicitor, and I have been advised that a family law solicitor must not advise on this type of pension scheme.

I am still promising to update once I've had my pension advisory service appointment; I've found a local actuary who lists pensions as his speciality but its just how to raise the fee. Really good discussion and such helpful links on here though - top quality MNetting.