Pensions Alert

The emergency budget of 22 June introduced a change to government run employee pension schemes that is now starting to affect couples negotiating a divorce settlement.

Pensions increase annually. If you’ve left a scheme the value of deferred benefits will increase to keep in line with inflation, and pensions in payment will increase in the same way (personal pensions are different – with them you can buy whatever type of annuity you want). The Chancellor announced in the budget that all government run pensions (e.g. the NHS, Teachers, Police, Civil Service etc) will now rise in accordance with CPI rather than RPI.

CPI has traditionally been lower than RPI for a number of reasons (but note that the government is thinking about bringing housing costs in to the CPI so this is still very fluid) so this will mean that pensioners in such schemes will get less in their retirement than they might have thought.

When valuing a pension for divorce purposes the Court looks at the Cash Equivalent Transfer Value (CETV). This is the money that the scheme administrators would pay in to a private pension for you if you were minded to transfer out (seldom will this result in anything other than you losing money). The pension administrators can value in their own way the cost today of providing the benefits you are entitled to receive in the future. In doing so they are obliged to consider the best interests of the remaining scheme members, not the person hypothetically leaving, so traditionally CETVs don’t reflect the true market value of such pensions anyway.

The change to CPI means that CETVs will be even lower. If you already have a CETV for such a scheme then it is now out of date. Scheme administrators have imposed a temporary moratorium upon supplying CETVs (if you need one quicker you’ll have to go to an actuary, though they can only give you their best guess).

We can help clients through what is a very complicated area of law. Whilst the settlement of some cases will inevitably be delayed, with good will on both sides it will still be possible to come up with solutions and agreements can still be reached.

Expert advice is essential.

Andrew Lee

Andrew Lee is a senior associate solicitor at Gregory Abrams Davidson,  a member of the Advanced Family Law Panel of the Law Society and a Collaborative Family Lawyer. He can be contacted on 0808 501 3528 or at [email protected]