I would like to offer a few comments on this thread, from a rather different perspective to Nigel. There are several issues here, which could be in the way of understanding what is going on.
First, a pension can be shared on capital values or income. If the split is capital based then the valuation arrived at by the scheme is irrelevant, providing the sharing order does not cause financial harm (Nigel’s point). If the split is income based, very few schemes will assist with the required calculations. Therefore, it is necessary to know both the CETV and the method of pension share implementation to calculate the pension rates for each party and the splits required to achieve the objectives; although the actual split will be expressed in terms of the CETV (as a percentage in England, Wales & NI, as a financial amount in Scotland). Incidentally, my guess is that this is what the calculations done in the case of Louise’s husband were about.
Secondly, if some part of the pension value (let’s call it the CETV) is to be disregarded, which is the approach taken under Scottish Law, you would be better off knowing the CETV and the accompanying scheme and member’s details when drafting the order.
For example, Mr A joined started his employment in 1990 when he was eighteen. Three years later, when he married. Ten years later, he and his wife separated. A
pension sharing order will be made, but only for the pension value built up over the period of the relationship – the ten years from 1993 to 2003. The approach adopted by Scottish courts is to calculate the proportion of the CETV built up over the relationship, in this case ten years worth. He has been in the same employment for eighteen years, so proportion of the CETV that can be available for sharing is ten eighteenths, or 56%. Or is it? What if (as is often the case) he was not allowed to join the scheme until he was twenty-one? If that is the case, then the percentage of the pension available for sharing is ten fifteens, or 66%.
Clearly, you don’t need to be an actuary to work this out (otherwise I wouldn’t be able to do so), but someone needs to analyse the scheme and understand what the CETV represents, then of course there is Nigel’s point about whether the sharing order is likely to cause financial harm. All lawyers are capable of doing the first part, but I have not yet come across many that can do the second.
By the way, just in case there is some confusion. It is not technically possible to share a pension that is built up after the sharing order is made. Some practitioners advocate exotic beasts called deferred pension sharing orders and even state that some have been made. Most will say that they are not allowed and personally, I shudder to think how a scheme might implement one, even if they accepted the order. By contrast, a
pension attachment order attaches a specific percentage of the pension at the member’s retirement and therefore it can include pension entitlement built up after the order is made.
Much of the confusion about pension sharing is the result of poorly presented pension reports, some of which are done by actuaries. Pensions can be complex, the calculations required to value them can be mind boggling for the non-actuary, and I include myself here. Doing a fair and accurate valuation of a pension in a divorce is only part of the job. Presenting the information clearly, so that it can be understood by the clients, their lawyers and the courts is of equal importance but many fair at this final hurdle. As with family lawyers, not all actuaries are the same.
I shall leave Nigel to answer the questions raised by Maggie; I suspect that he will prove my point!
Peter.
