The key points of GN 11 are as follows:
— the CETV calculated must provide
a fair reflection of the benefits available to the scheme member
on withdrawal;
— the underlying basis should ensure
consistency of treatment between transfers out and transfers in;
— the value should represent the
actuarial value of the benefits preserved assessed using market
rates of interest;
— all guaranteed benefits particularly
pension increases, must be allowed for a well as any option that
would be financially advantageous to the member;
— allowance should be made for
discretionary benefits (i.e. pension increases) unless the Trustees
direct otherwise;
— allowance can be made for expenses;
— the minimum CETV that can be
paid is that calculated on the Minimum Funding Requirement basis
which is used to provide a minimum funding level for Final Salary
Pension Schemes;
— the CETV calculated can be reduced
if the actuary feels this is advisable when a scheme is underfunded.
In reality a CETV calculation should simply
be requested from the scheme administrator. An actuary need not
be involved directly. However the calculations that are carried
out will be based on tables authorised by the actuary to the scheme.
The basis underlying the calculation will
apply to all transfers in to and out of the scheme. The actuary
will select long-term financial and statistical assumption necessary
for the calculation. Although the actual marital status could
be taken into account, it is more normal for assumptions to be
made as to the proportion of members that will be married and
the average age difference between husband and wife.
Reference has been made to two types of
transfer values frequently quoted by an actuary. The difference
between the two is important to understand, as it is relevant
to an assessment of whether the CETV is indeed an appropriate
value to place on pension rights.
The CETV is the value of a member's pension
rights calculated on a leaving service basis. In other words,
it values the rights built up until the effective date of calculation,
and assumes that the member left the scheme at this date. Once
a member leaves the scheme, his benefits are preserved and are
subject to statutory increases between the date of departure and
the date at which they come in to payment. The actuarial basis
underlying the calculation of a CETV makes an assumption as to
the level of increases which will be awarded during this period.
In both cases the valuation is discounted
because the valuation is being made now in respect of something
which will happen at an uncertain future date. An allowance for
investment income in the meantime has to be made. On the other
hand, salary will increase and an allowance to revalue salary
to date of entitlement to pension also has to be made. On the
continuing service basis it also should be borne in mind that
further contributions will be available for the benefits. In Bannon
v. Bannon, 1993 SLT 999 the use of method (i) resulted in
a valuation of £51,000 and the use of method (ii) resulted
in a valuation of £34,270. In Bannon the husband was
a policeman and had what might be regarded nowadays as one of
the few jobs for life.
Anyway, the Regulations (as amended) effectively
adopt the cash equivalent as the value for all except pensioners
and those with less than 12 months to normal pension date. This
greatly reduces the scope for dispute. However, in high value
cases, it may still be worth getting an independent actuarial
check. For pensioners (and old style retirement annuity contracts),
the otherwise omniscient regulations give up and leave valuation
to calculation "by the court by such method as it shall see
fit". This is an area for old style actuarial dispute. In
Gribb v Gribb, 1996 SLT 719, the pension in a payment was
valued at a capital sum and divided. In Crosbie v Crosbie,
1996 SLT (Sh. Ct.) 86, the difficulties of this were recognised
because a capital value of a pension really is a very notional
concept. Consequently, the standard 50 per cent was reduced to
37.5 per cent. Regulation 3(5) says that in making these calculations
regard may be had to information provided under regulation 4 or
the Disclosure Regulations (mentioned later) or other information
or evidence. Sandra Eden (Green's Family Law Bulletin,
Issue 23, page 4) says this allows departure from the cash equivalent
method; but it only allows eclecticism of information to make
the cash equivalent calculation.
Should the value of widow's benefits be
included in the valuation of pension rights? In consequence of
the divorce there will be no wife and therefore she will not be
a widow. That is not the answer because the scheme was still providing
cover against that risk and the member can re-marry. The cases
when the possibility of re-marriage can be entirely excluded will
be comparatively rare. The statutory cash equivalent includes
a 90 per cent married assumption. In Gribb v Gribb, 1994
SLT. (Sh. Ct.) 43 it was decided the value of widow's benefits
was to be taken into account in valuing the matrimonial property.
In Dible v Dible, 1997 SLT 787 Temporary Judge R G McEwan
decided that widow's benefit formed no part of the matrimonial
property. In the Extra Division at 1997 SLT 787 it was decided
that as the divorce rendered spouse's benefits nugatory, there
was no value to attribute to them. In the by-going it was remarked
that spouse's benefit might only have a value if assignable, something
very unlikely in the light of the Inland Revenue approval requirements
and the Pensions Act 1995. In many cases it may not matter because
in the normal case the value attributable to the widow's benefits
is fairly low. Section 167 of the Pensions Act 1995 amends Section
19(5) of the 1985 Act to make clear that survivor's benefits are
included in pension rights to be valued and shared. See also the
definition of "benefits under a pension scheme" in regulation
1.
(b) Money Purchase. On the face of it money
purchase benefits are easier to value because the value is simply
the amount accumulated. Additional voluntary contributions (whether
to any employer scheme or a free-standing scheme) are usually
dealt with on a money purchase basis, and so are personal pension
schemes.
If acting for the scheme member make sure the
valuation takes into account the way insurance companies apply
charges and that a value is not being attributed to something
not there.
Bear in mind that in both cases valuation is
at the relevant date and therefore already in the past.
The Benefits Agency, presumably believing State
scheme benefits to be available for division have introduced a
valuation service, using form BR20 but it is a total valuation,
not at a given date (the "relevant date" under the 1985
Act) and does not identify the matrimonial property element.
2. Identifying the "matrimonial property"
element
Under section 10 of the 1985 Act what is to
be divided is the "matrimonial property". Section 10(4)
and (5) defines that. Broadly, as applied to pension rights it
means the value of the pension rights built up between the date
of marriage and the relevant date, which is when they separate
or, if earlier, the date of service of the summons in the action
of divorce.
This period of the marriage will not be co-extensive
with active accrual of benefits under an occupational pension
scheme. Lots of things can happen. People change jobs, get admitted
to schemes, schemes get wound up and people transfer from one
scheme to another or can change jobs without transferring their
preserved benefits out of a previous employer scheme.
By regulation 3, the matter is one of time-apportionment.
The value of the pension rights is simply time-apportioned between
the number of years in membership during the period of marriage
and the number of years of active scheme membership which do not
coincide with the period of a marriage.
Time-apportionment is not always appropriate.
It assumes even growth of the pension value. That will not be
the case where there has been a bump such as a sudden salary increase,
a revisal of the benefits structure or a significantly larger
contribution to a money purchase scheme. These will alter the
level of benefit for the whole period of service but not necessarily
alter it in an even way depending upon whether they occur before,
during or after the period of the marriage. No account of this
is taken by the regulations.
Always ensure that you know whether or not the
scheme has had sex equality applied to its benefits. The requirement
for sex equality was laid down in the case of Barber v Guardian
Royal Exchange [1991] 2 WLR 72 but not fully explained until
later cases, culminating in Coloroll Pension Trustees [1994]
IRLR 586. As the benefits of the disadvantaged sex have to be
levelled up to those of the advantaged sex for the period prior
to the date of equalization under the scheme this means an increase
in benefits and their value.
Transfer values after 5 April 1997 require to
be calculated taking into account the provisions of the minimum
funding requirement. This gives rise to higher values generally.
It seems that these new values should apply even where the relevant
date is before 6 April 1997. That is a point which you might like
to bear in mind if acting for the claimant spouse—or forget
if you are acting for the other one.
The Benefits Agency valuation service does not
value benefits at an agreed date or so far as accrued over a period.
3. Fair Sharing
Under section 10 fair sharing means basically
equal sharing but there are special circumstances under which
that is not necessarily the case. This is of more general application
than simply pensions. This has been used as a basis to reflect
the fact that payment of benefits is contingent on something which
may not happen. In Carpenter v Carpenter, 1990 SCLR 206
the award was three-eighths.
