Pension sharing and tax implications

[Captain1]

Tricky one this can’t find the answer anywhere.

let’s assume in a divorce a pension pot of £100k is to be split 50/50.

now assume that one party wants cash rather than a pension sharing order.

does that equate to £50k cash?

Reason ask is as I high rate tax payer if I pension share then that £50k (in the pension) only cost me £25k ‘cash’ due to tax relief if I give £50k cash then it costs me 50% more.

hence if a party wants a cash equivalent it that amount “prorated” in any way to allow for this?

also worth nothing that if the party gets it as £50k cash it’s a tax free amount. Whereas the £100k in the pension will be taxed as income on drawdown.

I’m not a pension expert, but my understanding is that the ‘value’ of a pension is not the same as its cash value (the CETV)

Pension fund value is the current value of a defined contribution pension pot.

The transfer value (CETV) - cash = the amount your provider will offer you for transferring out of the scheme.

You would need your provider to provide the CETV value if you want it as cash.

I think you are over complicating this.

My now DH’s EW was given a pension sharing order on divorce. That amount agreed was just transferred over into her name for her to do what she wanted with it.

Yes I’m looking for the formula to calculate what the cash value as an alternative to pension sharing.

You also need to consider that the £100 k pot isn't made up solely of contributions. There will be a lot of investment growth, employer contributions and tax relief.

My own ex is trying to argue he gets a larger % share of the pension pot because he'll be a higher rate tax payer. I'm not. He thinks our net pension is the amount to be equalised. But i don't think it works that way, if anyone knows for sure?

I'm not sure you can equate a pension pot of 50k to 50k cash. I also thought that if the person with the 100k pension pot doesn't have 50k (or whatever is agreed) to give the other party you had to take the pension shares.

I could be wrong but pretty sure you don't just get given £50k cash in the bank... it has to be transferred into a pension in your name?

Another way of looking at it is would you rather have 50k in tax free cash now or £50k in 20 years taxed on drawdown.

same amount of money but a different “value”.

As I’ve stated above - £50k pension ‘value’ is not the cash equivalent.

A very quick google search will explain this to you.

The ‘value’ of a pension is not the same as its cash value (the CETV).

Ask your provider for an approximate CETV (cash) value.

As the poster above says - you won’t get £50k cash in the bank. It will be transferred into a pension in your name.

Yes fully understand that but if the other party wanted it in cash rather than as a pension share how does one “value” that amount as it differs as per above.

ie: what would be a fair and reasonable offer.

It’s worth less (from memory I was told about 2/3 cash vs CETV) but it’s extremely complicated and depends on lots of things - type of pension, your respective ages, then various assumptions ie interest etc. The only way you are going to get an answer, is to consult a pensions expert on divorce. Even then, it you will get a range of sums and a suggested amount but nothing concrete.

Yes I think that’s a fair offer, around 2/3.

I dont think it’s fair for her to expect £50k in tax free cash now in exchange for £50k I can’t get for 15 years and when I do I will be taxed on it.