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Background
We were approached by the solicitors representing Mrs N that were concerned with the treatment of Mr N's pension rights given that he was now in retirement. Mr N was aged 60 and had three occupational pension scheme of which he had been in the main scheme for a period of 23 years. Two of these schemes were already in payment plus one personal pension.

Mrs N was aged 52 and had no private pension provision having brought up the children and looked after the home during most of their married life, this being a period of 25 years up to the divorce.



Pension audit
For Mr N's occupational pension schemes and private pension the CETV Method showed a value of £165,600. Mr N had offered Mrs N £30,000 as a cash settlement in respect of her interest in his pension rights.

We were asked to advise on the reasonability of this offer. We noted that a large proportion of Mr N's eventual state pension had been earned during the course of this long standing marriage and urged that state pensions be taken into consideration. As a consequence of the divorce Mrs N was only entitled to 70% of the full basic state pension whereas Mr N had the full state pension to enjoy.

Because of the difference in ages and due to the fact that the basic state pension is fully indexed linked, the capital value of Mr N's state pension was £53,400 increasing the total value of his pension rights to £219,000. Of course Mrs N's state pension also had a capital value. Nevertheless Mr N's state pension exceeded the value of Mrs N's state pension by over £20,000.


Outcome
In the end Mrs N and her solicitor decided on offsetting and she eventually received a cash settlement of £70,000 in respect of her husbands overall pension rights and this exceeded the original offer by over £40,000, of which the basic state pension played its part to secure a higher value.

The important point here is that on divorce the basic state pension must be considered. The reason why it could be ignored is that it has the public perception of not being worth very much, yet the benefits are fully indexed linked and can add tens of thousands of pounds to the pension rights.

On divorce it has been ignored because it is expected that the benefits from the state pension are the same for men and women. However, there will usually always be a difference as the couple will have differing ages, mortality expectations, retirement dates, durations of employment and hence National Insurance (NI) contributions made by the time of the divorce.


The basic state pension is not subject to pension sharing so although they can be taken into account in a pension audit, settlement is typically by offsetting against the other matrimonial assets.

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