Understanding Pension Valuations During Divorce

Pensions are important assets to include in divorce proceedings, as they are often worth more than any other asset on the table. They’re also unusual, because the pension’s recipient might have to wait decades before he or she is able to access it. Given these facts, it is vital that you understand the pension valuation process – which, depending on the type of pension in question, may be complex. This blog post will walk you through the basic valuation methods for all the different types of pensions that could feature in divorce proceedings.

Cash Equivalent Transfer Value (CETV)

In the context of divorce proceedings, the value of a defined benefit pension is referred to as the Cash Equivalent Transfer Value (CETV). This value, which must be requested from your pension provider, represents the lump sum that the pension provider would transfer to another pension arrangement if you decided to move your pension. It’s crucial to understand that the CETV might not accurately reflect the true value of the pension benefits. Therefore, legal professionals often engage financial specialists or accountants to ensure accuracy.

Public Sector Pensions

For public sector pensions, such as those provided to NHS, Civil Service, and Armed Forces employees, the scheme administrators will provide the CETV. These pensions are usually unfunded, meaning the CETV doesn’t represent a pot of money but rather the cost to the scheme of providing the benefits. However, for our purposes, it operates the same as any other CETV.

Defined Contributions Schemes

Valuing defined contributions schemes is relatively straightforward: the value of the pension is simply the amount of money in the pension pot. As always, you should consult your pension provider to obtain this valuation.

SIPPs and SSASs

Self-Invested Personal Pensions (SIPPs) and Small Self-Administered Schemes (SSASs) are valued in the same way as any other defined contribution pension – the value of the pension is the market value of the investments held within the schemes. Given the unique range of assets included in these pensions and their bespoke nature, consulting a financial specialist or accountant is often advisable.

Pensions Held Abroad

Pensions held abroad follow their own national rules and regulations, making their valuation more complex than pensions held in England and Wales. In such cases, the services of a specialist are typically employed to ensure an accurate valuation.

State Pension

Your state pension can’t be divided during a divorce. However, under the old system (pre-April 2016), you could have already built up your state pension and now be earning additional state pension. If this is the case, the court could decide that the additional National Insurance payments you have made can be used to increase your soon-to-be ex-spouse’s state pension. This benefit will be lost if they remarry or enter into a civil partnership before reaching the state pension age.

Division of Pensions

Once the cumulative value of the pensions has been determined, the courts will consider how to divide them. This is typically done through a pension sharing order, where a court order is used to divide one pension into two, although in some cases, other methods might be used to reach a fair outcome. 

If you are considering a divorce and are wondering what will happen to your pension, feel free to contact us. Our friendly team of family law specialists will be happy to walk you through the situation.