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When applying a valuation method to members pension rights within pension arrangements, there will be factors to consider beyond the legislation currently in place. Legislation prescribes methods for calculating the value of retirement benefits by the provider using the cash equivalent transfer value (CETV) used as the basis. This method was chosen for pension sharing primarily because it is a method that already exists for the calculation of benefits for early leavers and therefore is a method that can be easily obtained from the providers of pension arrangements whether this is an employers pension scheme such as a final salary pension or a personal pension.

In certain circumstances the CETV Method is the correct method for arriving at a fair valuation of retirement benefits, however for a final salary pension or public service scheme the assumption that the scheme member terminates membership as an early leaver will distort the valuation of benefits that could be apportioned to the spouses lost rights on divorce or nullity of marriage.

It will be necessary for those divorce cases where the CETV from the scheme administrator is not appropriate to consider other methods of valuing retirement benefits to produce a suitably adjusted CETV. Other regulations, court procedure rules and expert evidence rules can all combine to allow the court to adjust the CETV as appropriate to reflect the circumstances and specific needs of the parties on divorce.

Specific legislation
Under section 30 of the Welfare Reform and Pensions Act 1999 (WRPA 99) there are provisions for the calculation of the cash equivalent transfer value. This method is well established and applies to the valuation of a members pension rights for early leavers from an occupational pension scheme or personal pension where the scheme member wishes to transfer accrued rights to another pension arrangement.

The calculation for the CETV in the context of early leavers is applied under section 97 of the Pension Schemes Act 1993 (PSA 93) and the calculation of the CETV in pension sharing cases will essentially reflect these principles. The detailed workings of the CETV calculation for early leavers can be found in subordinate legislation regulation 7 of the Occupational Pension Schemes (Transfer Values) Regulations 1996 and regulation 3 of the Personal Pensions Schemes (Transfer Values) Regulations 1987.

In terms of pension sharing, the detailed valuation workings can be found in regulation 3 of the Divorce etc (Pensions) Regulations 2000 that refers to regulation 3 of the Pensions on Divorce etc (Provision of Information) Regulations 2000 for the calculation of retirement benefits. The process shown in the step-by-step guide shows the CETV is required, this being the prescribed method of valuation of a members pension rights including pensions in payment.

Other regulations
For calculating the value of retirement benefits other than the cash equivalent transfer value, there are other regulations that provide some guidance. As far back as June 1996 the Family Policy Division of the Lord Chancellor's Department issued guidance in respect of earmarking (which could be applied to pension sharing) that was introduced under section 166 of the Pension Act 1995.

It referred in particular to the Divorce etc (Pensions) Regulations 1996 for the method of valuation and although this regulation has been repealed by the Divorce etc (Pensions) Regulations 2000 it does offer guidance to the professional adviser as follows:

Paragraph 14 states that insofar as pension rights accrued up to the time when the court considers financial provision on divorce are concerned, the parties on divorce will not be permitted to use any method of valuation other than the prescribed method. It would, however, be open to them to dispute whether the prescribed method has been correctly applied.
Paragraph 15 states that the Divorce etc (Pensions) Regulations 1996 will not prevent the parties providing further information as to the expectation of the pension, and will not prevent the court from taking account of that information in circumstances where it deems the cash valuation provides an inappropriate or inadequate indication.
Paragraph 16 states that the prescribed method cannot be used for discretionary benefits not including in the CETV or pensions administrated outside England and Wales. Regulations cannot, therefore, bar other methods of valuing such pension benefits.

Court procedure rules
In divorce cases where there are complex pension arrangements and the parties have appointed a pensions expert to provide expert evidence the court will work with the parties to this end, whether this results in offsetting against other matrimonial assets, earmarking or pension sharing of the members pension rights.

In all cases there will be the need for the court to be satisfied that the extra costs associated with expert evidence are justified. The court will have regard to rule 2.51B of the Family Proceedings Rules 1991 as shown in the step-by-step guide, that states that the overriding objective of the court must be to ensure that the parties are on an equal footing and deal with the case in ways which are proportionate to the amount of money involved, to the complexity of the issues and to the financial position of each party.

For an earmarking order the court will require projections to retirement rather than the CETV, however, as earmarking orders can be subject to variation in the future complex and expensive expert evidence from an actuary may not be justified and the court would look to the provider or pensions consultant that is suitably qualified as a pensions expert to provide the projections.

For pension sharing there will be no opportunity for variation before the court grants the decree nisi or after granting the decree absolute so the court will be particularly concerned with achieving a fair value of the retirement benefits for both parties and therefore inclined to need expert evidence in additional to the CETV from the provider, such that provided by a pensions consultant that is a pensions expert.

Expert evidence rules
During ancillary relief proceedings the court can have regard to rule 2.61C of the Family Proceedings Rules that apply to part 35 of the Civil Procedure Rules 1998 regarding expert evidence and detailed in the step-by-step guide. This states that expert evidence will not be allowed (whether written or oral) unless permission has been given by the court and the court will only give such permission if expert evidence is reasonably required and justified in light of the overriding objective as stated in rule 2.51B of the Family Proceedings Rule 1991.

Only where the pension arrangements as part of the matrimonial assets of the divorce are substantial and complex would the court consider such evidence. In most cases the need for additional actuarial evidence provided by an actuary will not exist and the court will be satisfied with projections from the provider where the CETV is acceptable or projections from a pensions consultant as a pensions expert where an adjusted CETV is required as evidence as would be the case for a final salary pension or public service scheme.

If the court has established the need for expert evidence but there is no agreement between the parties as to the pensions expert to appoint, the court will use its powers to instruct that evidence be given by a single pensions expert.

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