Introduction
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:
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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. |
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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. |
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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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