Pensions - Separation or Divorce Financial Settlements
- AuthorMikaela Rogerson
Pension CEV - Cash Equivalent Value as part of your financial settlement.
I’ve got my pension CEV (Cash Equivalent Value). What do I do with it now? Is it reliable? Can I rely on the CEV given by my spouse?
Once you‘ve got your CEV from your pension company give it to your solicitor.
The CEV is just a starting point for valuing your pension benefits. Some pensions are made up of many different benefits and not all are valued or included for the purposes of calculating the CEV. To get the fairest settlement the CEV must be accurate and complete.
Below are some things that could make the CEV unreliable and which may need further investigation.
Defined Benefit schemes
These are schemes where the aim at the outset is to provide a specific pre-determined benefit on retirement. Hence the value is not dependent upon the value of any monthly financial contributions, but on how well the pension company is doing to build up a fund sufficient to meet the pre-determined benefit.
Certain defined benefits schemes will choose carefully the methods of calculation used to value the pension fund. For this reason you cannot compare the face value of a defined benefit scheme against the value of a defined contribution scheme.
Examples of defined benefits schemes include Teachers, Armed Forces, Police, NHS and the Civil Service. The CEV'S of these types of scheme are often thought to be slightly undervalued.
AVC’S (Additional Voluntary Contributions)
Some CEV’s do not take into account any additional voluntary financial contributions made to the pension by the member, hence the CEV does not reflect the full value.
Does the CEV include all the benefits in the pension?
You need to ask the pension provider what benefits does the CEV cover and what has been taken into consideration in its calculation.
In calculating the CEV some providers only value specific benefits but not all benefits. For example death in service benefits may not be included but can be particularly valuable.
If a party has retired early or plans to retire early due to ill health, has this been factored into the calculation of the CEV? This may mean that the benefits in the scheme have got to last possibly over a longer period of time increasing the value of the fund.
Pension already in payment / Flexi-Access drawdown
The CEV of a pension already in payment will alter as payments are drawn down.
Ensure that if one party has already accessed their pension funds by Flexi-Access drawdown arrangements that this payment is reflected fully in the CEV.
Public Service Pensions (e.g. Police, Armed Forces, Teachers Pensions)
The value of these pensions can increase once certain service points or seniority are reached. Any CEV needs to be carefully checked to ensure that has been taken into account.
Guaranteed Annuity Rates
If you have a retirement fund which has Guaranteed Annuity Rates this benefit may not be calculated for the purpose of producing a CEV.
Pension income is subject to income tax. This deduction is not reflected in the CEV.
In some pension schemes there is the ability for the pension member to ask the pension company to pay their annual allowance tax charge and deduct the costs from their retirement benefits. This is under the 'Scheme Pays' facility. You need to establish whether 'Scheme Pays' is relevant to your case and if it is what effect does it have on the CEV.
This is not a complete list of all the things to consider in relation to pension CEV’s as each pension is subject to its own rules and circumstances, but it shows how the CEV can on some occasions be misleading in the first instance and why a careful review of any pension CEV should always be undertaken.
In the first instance one of our specialist family law solicitors can assist you in identifying whether there are any potential issues in relation to your or your spouses CEV. Frequently when these types of issues do exist the best course of action is to instruct an Actuary or Pensions on Divorce Expert to ensure that the pension is valued properly and all benefits are taken into consideration before you negotiate a settlement. That is something that we can assist you with.