Pension offsetting 25%?

Hi,

I've read everything I can find on pension offsetting against equity, but it was written some time ago. Does anyone know what the norm is these days? Is the 25% rule thought of as outdated now? Both myself and my STBX are close to retirement and I have a teacher's pension (CE being revalued by an actuary). If I gave her £40,000 on a pound for pound basis this would give her £80,000 more than me to spend on a house and it would take me 25 years to recoup the money - doesn't seem like a good deal to me! I'm thinking of arguing that I should get the money back in 10 years which would be a utility discount of 40% (probably less after the actuary re-values my CE). I can still buy a house but it would wipe out my lump sum. Any thoughts would be welcome.

Thanks.

Not sure what you mean by the 25% rule?

Pension is often considered to be worth less than equity the younger you are as it is longer until you can access it and you can't live in a pension.

If you’re close to retirement a £ of pension is really worth the same as a £ of equity.

Thanks for your reply. It's an odd setup. I'm sure any sensible person close to retirement would opt to keep the £40,000 and spend it on a house or a cruise, rather than give it to their stbx and receive it back over a 25 year period (I'll be 85 by then!). What's in it for me?!! Perhaps offsetting only works for younger people who can take on a mortgage. Or when it's essential to meet housing needs.

The 25% rule was a precedent set by Maskell v Maskell which valued equity at 25% of pension.

Thanks again for your reply. I do find the reasoning behind a one-to-one ratio difficult to comprehend. But there it is.

MarcusFox wrote:

The 25% rule was a precedent set by Maskell v Maskell which valued equity at 25% of pension.

Thanks again for your reply. I do find the reasoning behind a one-to-one ratio difficult to comprehend. But there it is.

Completely different to your circumstances though. One party was awarded all the equity from the FMH and the other got a pension. The argument was that at the age of 41 and potentially about to lose his job the pension was of no use to him and certainly didn't represent the same value as the house equity and he needed a home for his children.

I thought 25% is very harsh as a rule of thumb. I don't think any rule of thumb can work because circumstances differ so much. I have looked into taking out a mortgage at age 60 over 15 years to cover my loss of equity, paid for by the pension offset. This seems fair. Funding this needs a discount of 50%. This will cost my stbx an extra 8% of the pension which comes to £100 per month after tax. Not too much. It is essential to her that she lives in an expensive house (the offset equity isn't needed for her to be housed, it is her solicitor that raised the idea of offsetting). I don't see the need myself, I'm just trying to find a way to reach an agreement. I think she might accept this. Thanks for replying - it helps me to get my thoughts in line.

Whilst Maskell is case law, it is considered bad law and nobody applies a 25% rule of thumb.

The percentage will vary depending upon when the pension is due for payment. The closer to payment, the higher the percentage.

However, different pensions perform in different ways which is why pension actuaries are usually instructed to prepare a report. The reports are technical and can cost a fair bit of money - worthwhile if the fund is £500k but no so much if it's £35k.

Charles

Thanks Charles. Our report is costing over £2000, but it's worth the money. There are a number of pensions involved and three of them are public sector. If it helps us reach a settlement it's money well spent.