With the divorce courts looking to create equality between the husband and wife upon separation, attention must be given to pensions which can often be the major asset to be divided. Legislation has set out the way to calculate the value of an individual’s pension known as the “Cash Equivalent” (CE), however in the case of the police pension scheme this can represent a huge underestimate of the benefits due as it is calculated as if the member left the police service on that day.
If someone leaves the Force before completing 25 years service they can only receive their retirement benefits at age 60, however if they leave after completing 30 years service they can retire on a full pension.
If the CE is calculated before completion of 25 years service and the member remains in active service then it will ignore up to 12 years worth of pension payments which can cause unjust financial outcomes if the proper care is not and advice received when implementing a Pension Sharing Order as I demonstrate below.
It will often be necessary to involve an actuary to prepare a report to calculate what percentage share is necessary to achieve equality.
The following highlights and demonstrates what may be a typical case:
PC Jones joined the force when he was 18 and is now 42. He earns £30,000 per annum and now wishes to divorce Mrs Jones who is two years younger than him. The Police Pension scheme calculates the value of his pension (the CE) at £160,000.
Mrs Jones has no pension and seeks a PSO (pension sharing order) If a PSO for 50% is ordered Mrs Jones will get approximately £8000 per annum when she reaches age 60 (in 20 years time).
PC Jones on the other hand can retire in six years time with 30 years service with a pension income from his pension rights accrued before the divorce of £12,000 per annum (75% of accrued pension) plus the pension income from pension rights accrued after divorce of £4000 per annum which would give him a total income of £16,000 per annum payable 14 years before Mrs Jones gets a penny!
An actuary would calculate that a pension sharing order for 98% of PC Jones pension would provide for equality between them. PC Jones can retire at 48 with a pension income of half his pension rights accrued before divorce £8,000 per annum plus all the pension rights accrued after divorce of £4,000 per annum giving both husband and wife £12,000 per annum.
Please contact me firstname.lastname@example.org or 0117 910 2250 to discuss further.