Capital for pension

[FallenFigs]

I have a question and I know the detailed answer will be specific to our case, but just trying to work out a rough rule of thumb, if there is one.

At a very high level, if I want to retain more capital to enable me to stay in the house, and am willing to surrender a claim for pension equalisation in return, roughly how much pension claim should I be willing to surrender? I know they aren't comparable because pensions are tied up longer, etc.

For context, DH is 5 years younger than me, so whatever he retains in his pension has 5 years longer to accrue.

So, if I want to negotiate for £50k more of the non-pension asset, roughly how much pension equalisation should I be willing to surrender? i.e. What does £50k asset/property capital equate to in pension terms?

Thank you.

Depends on

his age
the current pot
whether defined contribution or defined benefit

it will also depend on the overall assets and equity and what % you think you will achieve

He’s early 40’s and we both have SIPPs
His SIPP is almost £100k more than mine.
overall I am seeking more than 50% in my favour

On what grounds?

What grounds which bit? The more than 50%? Earning power, time DC are with me

Time dc with you not overly relevant less he’s not going to have them at all

it really depends on many factors so it’s v hard for anyone to give you an answer - even high level. Or 50k equity which is accessed now you might only be looking at half that in pension.

but it will depend on many things, not least needs and if these can be met with 50%

Ok so for context I've had advice that all factors mean that a departure from equality is likely to be acceptable to the court.

Do you mean that if I 'took' £50k equity, and he kept equivalent in pension, that equivalent in pension might be £25k? So, if I 'took' £50k equity there would still be a case for levelling up the remaining £25k in pension? Or the other way round.

I mean that if you get more equity you’ll probably we lose 25k pension. But that’s a very very rough figure.

surely if you’ve had legal advise specific to your case your solicitor can be more specific!

Thanks. I’ve had legal advise on a set of numbers and a strategy but the numbers keep shifting (from DH) so just trying to figure some stuff out for myself rather than incur legal expenses for every question.

Ok so roughly speaking if there is £50k equity on my side that would equate to £25k pension. And so if there is a £50k equity pot and a £50k pension pot, where I retained the equity, and he retained the pension, there would be £25k pension left over to equalise. Therefore £12,500 each on a 50/50 split.

It is impossible to confirm what you are asking. For the purposes of divorce a pension £ does not = an equity £. You will need to pay for pension assessments to find out what they will be valued at for the purposes of a divorce. A Cash Equivalent Transfer Value is the most commonly used valuation but it depends on the pension type. It can be expensive and time consuming to value pensions and some other assets.

The amount of time you spend with your children won’t change the cost of your housing needs if you both co parent. You will both need more or less the same size and location of property.

Time spent with children is relevant to income and if you are taking care of the children more then your income may be compromised for a few years into divorce compared to his. But you will note that I am saying income not salary. If you are entitled to benefits then your take home income will be more than your salary. You will also be receiving CMS and he will be paying it.

The best thing you and your ex can do for your children now is to rapidly get an assessment of your assets and your post divorce income and expenses. At this stage you can use rough estimates of values as you may decide you don’t need expensive valuations. This will inform you both of the likely outcome of a divorce and what is possible and what is impossible. Then you can focus on getting more accurate valuations and estimates where needed.

It is the pursuit of the impossible that drives up the cost of divorces unnecessarily and often with detriment to all those involved. Especially children who are living through a battle between two people they love.

It is impossible without detailed work performed by an actuary to answer this question. There are just too many moving parts and I'll demonstrate this with two examples.

Mr and Mrs A are divorcing. Both are in their mid 60s. Mrs. A has not worked since having children. Mr. A plans to retire next year. There is a house worth £300k and a pension worth £350k. Within a year, the pension can be accessed, 25% of it can be withdrawn tax free and the remainder can provide an income, although most of this income will become taxable at 20% once the state pension kicks in. The house is still worth slightly more therefore because it is £300k in the hand whereas the pension is only £87.5k in the hand and an income taxed at 20%. However, the difference in value is not huge. It might be reasonable for one to keep the house and the other all of the pension in this scenario.

Now imagine they are in their late 30s. The pension cannot be accessed for another 25 years or so. It may go up in value but it could also diminish in value especially because of inflation. The person who gets the pension in lieu of the house will have no deposit and will have to rent until they have saved up (if they can save up). When the pension is eventually paid out, it will still be taxable. In this situation, the pension is a lot less useful than it was in the first example.

I had a recent case that I was taking notes on. Equity of £100k and a pension of around £230k. The guy was on about £100k, she was on about £15k plus benefits (although CV suggested she was earning below earning capacity and could earn more). Both of them late 30s. Advice was that she would probably get lion's share of equity but it would be offset against pension. If she got all £100k, he would likely get around £100k pension to offset his £50k share of equity and then the remaining pension would be split 50:50.

Thanks, I really do get that the moving parts are tricky to gauge. I suppose my problem with that is, how do I get the parts to stop moving so we can actually make a decision.

Plus, with so many variables each party is given advice at the opposite ends of the spectrum and how does anyone meet in the middle without feeling like they’ve given away too much ground?

there is a decent chunk of equity, enough that DH will effectively not have a mortgage (or a very small one). He will be able to raise a larger mortgage than me, or equally to overpay a far greater amount to pay down whatever mortgage he is left with. Or boost pension.

I would have less pension than him (ie keep mine which is about £80k less than his) and have less time to rebuild but will have larger property equity.

does that help any?

noone knows your ages, earnings, assets, etc so it’s impossible

ultimately you get pension valuations , along with valuations of other assets and negotiate between solicitors and yourselves to agree, and if you can’t a court will

you need to understand your housing needs ( both parties), earnings, mortgage raising ability etc. if you are receiving cms that can help mortgage.

are you are ex far apart on proposals ?

Yes I understand the process. Albeit I have been advised to discount CMS from the equation and not count that as income.

we are very far apart. He wants to keep his pension, for me to give him some of the equity from the house and for him to retain his other assets. What this would mean is about 60/40 in my favour on property but about 60/40 in his favour on other assets (total pensions combined are more than property equity and other asset (his) is about £80k.

my solicitor has suggested 60/40 in my favour across the board would appear fair to court based on the factors they have (age, earning potential etc)

Well, you ask an actuary who can do a reasonable job of coming to a fair outcome based on the moving parts. Better than trying to guess.