Posts Tagged ‘Firefighters’ Pension Scheme’

Ian Conlon

About four years ago I was instructed to act in a divorce case for the spouse of a serving senior police officer. The CETV as quoted was approximately £750k and the first task was to satisfy myself that the accrued pension benefits and CETV had been calculated correctly. As the officer had already completed 25 years service the CETV should have reflected the value of benefits payable from age 50. I recall the shock at discovering that the CETV had incorrectly been calculated on the basis that benefits would come into payment at age 60 and that the correct CETV was around £1.25m.

Ok, so that was some time ago, I had assumed that such major issues would have been sorted out by now. So I was really quite taken aback when searching on the internet for some specific details in relation to the Firefighters’ Scheme when I came across a Firefighters’ Pension Scheme Circular from June 2010 which highlighted this exact issue. According to the circular, the pension administration system which they use had been applying the incorrect factors for calculating CETVs for divorce in situations where the member had attained age 50 and had completed 25 years service.

It may well be the case that the scheme administrators were aware of this issue for some time and were manually calculating these CETV requests, however the Circular does start with the words “It has come to our attention” which certainly raises the possibility that past CETVs have been calculated incorrectly and have possibly also led to the incorrect calculation of Pension Credits and/or Pension Debits resulting from a Pension Sharing Order.

Given that the issue relates to those aged over 50, the pension benefits in such scenario will be fairly material so a pensions expert should have been involved who would have picked up on any incorrect CETV of this magnitude. The position could be difficult if a materially incorrect CETV has not been spotted! It does certainly highlight the need for professional support where defined benefit pension benefits are involved.

Ian Conlon

In the June 2010 budget the Chancellor of the Exchequer announced the Government’s intention for future increases in public sector pensions to be linked to changes in the Consumer Prices Index (CPI).  Historically such pensions were linked to increases in the Retail Prices Index (RPI).

The Pensions Minister subsequently issued a statement on 8 July confirming that the Government also intends to use CPI for determining statutory minimum increases which apply to private sector pension schemes.

These changes will undoubtedly have an impact where pensions are a factor in divorce proceedings.

Although both are measures of inflation, RPI and CPI are calculated using different methods and are based on different “baskets” of goods.  Historically this difference has resulted, for most time periods, in CPI being a lower measure of price inflation that RPI.  Overall, commentators expect CPI to be around 0.5% to 0.8% lower than RPI over the longer term.

For all public sector pension schemes* the expectation is that future increases in pensions will be lower than previously expected.  Therefore, the switch from RPI to CPI will affect the assumptions underlying the calculation of Cash Equivalent Transfer Values (CETVs). This change is likely to reduce CETVs and may have an impact on what is deemed an appropriate percentage Pension Share.

By way of illustration, for someone who is currently 40 years old with a pension in a public sector pension scheme, the impact of this change alone could result in a reduction of around 20% to the CETV.

For private sector pension schemes, the impact of the change is likely to vary by scheme and will depend upon the rules of the particular scheme.

It is likely that many pension schemes will defer issuing new transfer values until the changes have been considered.   Further, pension schemes may decide to put on hold the implementation of Pension Sharing Orders.

For ongoing divorce cases where pension information has been provided, the solicitor and parties involved should carefully consider whether it is appropriate to base any decisions on this information and such advice as may have been provided, whether in relation to Pension Sharing or Offsetting without first seeking further advice from an actuary specialising in pensions on divorce.

Spence & Partners can provide an early indication of the likely impact on the value of the CETV and implications for Pension Sharing on taking account of these changes.

For more information on this or any other pension on divorce issue contact our divorce team

*Public sector pension schemes include the Principal Civil Service Pension Scheme, Health and Personal Social Services Superannuation Scheme, Armed Forces Pension Scheme, Local Government Pension Scheme, Police Pension Scheme, Teachers’ Pension Scheme and Firefighters’ Pension Scheme.

Ian Conlon Actuary

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