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The Importance of Accurate Valuation in Pension Sharing During Divorce

By Lara Davies on April 6, 2023

Divorce proceedings can be complex, particularly when it comes to dividing assets such as pensions. Pension sharing is an essential aspect of divorce proceedings, ensuring that both parties receive a fair share of the pension assets. In this blog post, we discuss how pension sharing works, how the pension credit is valued, and why an actuarial valuation is better than a basic Cash Equivalent Transfer Value (CETV).

How Pension Sharing Works

Pension sharing involves dividing the pension assets between the divorcing parties, allowing each party to have a share of the pension. In the UK, this is typically done through a Pension Sharing Order, which specifies how the pension assets are to be divided. The order includes details such as how much of the pension is to be shared and how this will be implemented.

Valuing the Pension Credit

When it comes to valuing the pension credit that is to be shared, there are two main methods that are used: a basic CETV or an actuarial valuation. While a basic CETV can provide a quick estimate of the value of the pension assets, it may not always be the most accurate way of valuing the pension. An actuarial valuation, on the other hand, takes into account a range of factors such as investment returns, inflation, and the expected lifespan of the pension holder. This method provides a more accurate picture of the value of the pension assets and can be particularly useful for pensions that are expected to grow significantly in the future.

Why an Actuarial Valuation is Better

An actuarial valuation is often the most accurate method to ensure that the pension assets are divided fairly. It takes into account a range of factors that affect the value of the pension assets, such as investment returns and inflation. This method provides a more accurate picture of the value of the pension assets and can be particularly useful for pensions that are expected to grow significantly in the future.

Seeking Professional Advice

Pensions are often one of the most significant assets that couples have, particularly if one or both parties have a high-paying job. As such, it’s crucial to seek professional advice from an experienced actuary or financial planner to ensure that the pension assets are valued accurately and fairly. An actuary can also provide guidance on how to split the pension assets in a way that is most advantageous to both parties, taking into account factors such as tax implications and long-term financial planning.

Conclusion

Pension sharing is an essential aspect of divorce proceedings, ensuring that both parties receive a fair share of the pension assets. An actuarial valuation is often the most accurate method to ensure that the pension assets are divided fairly. Seeking professional advice from an experienced actuary or financial planner can help ensure that the pension assets are valued accurately and fairly, and that the division of these assets is in the best interests of both parties.

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    • Lara Davies

      Lara is our Head of Legal Practice and a director. She advises on complex financial remedy proceedings, private child disputes, and Inheritance Act cases. She also has a keen interest in protecting vulnerable clients, particularly those who have experienced forms of domestic violence in their relationships. Lara has often represented fathers in private child proceedings and has a unique understanding of the challenges faced by them. Lara is keen horsewoman, and has spent her life competing in national and regional level dressage competitions with success. She is also a keen runner, and has completed Marathons, Half-Marathons and mountain races – she is now building up to her first ultra-marathon. Lara loves being outside in the mountains; her favourite place is the Scottish Highlands where she can be found a few times a year with her other half and their Pug in their campervan. She is slowly making her way through climbing each of the Scottish Munros and high peaks of England and Wales. Lara is a Welsh speaker.

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