Pensions on divorce and the role of your financial adviser
If you are going to get a divorce, or are already in the process of doing so, you will most likely appoint a solicitor to act for you. Your spouse will undoubtedly do so too.
If one or both of you have pensions you should also appoint an Independent Financial Adviser, IFA, to act for you. Why is this? Well it is because pensions can be extremely complex especially if you have one or more final salary pensions. An IFA can add a lot of value under these circumstances.
By the way, depending on the complexity of your estate, you may need to appoint various other professionals to act for you. When I got divorced for the first time in 2005 I had to appoint a barrister, property valuers, a business valuer as well as a solicitor. You may also have to appoint an actuary as well as other specialists! Daunting isn’t it?
Well rest assured that my case was an exceptional one. Most couples only need to appoint a solicitor each to act for them. So why appoint an Independent Financial Adviser and, if so, what type of IFA?
Firstly, you need to appoint a well qualified one such as a Chartered and/or Certified Financial Planner, one who specialises in pensions and who has experience of advising divorcing clients. Such an adviser should have experience and FCA permission to advise on pensions on divorce as well as an advanced pensions qualification such as G60. This is especially relevant if there is one or more final salary pension scheme to advise on. This is where FCA permissions become vital.
So how does such an adviser help? Well in a number of ways actually.
For example if the pension is a final salary pension scheme, especially if it is a public sector one, you will need to get it valued. A pensions specialist IFA can do this for you.
Virtually everyone is entitled to state pension. Some individuals qualify for a supplementary state pension known as the State Second Pension, S2P, for which your adviser can obtain a valuation from the Department for Work and Pensions, the DWP.
You can obtain a transfer value from private sector and public sector final salary pension schemes know as the Cash Equivalent Transfer or CETV. However, in practice the valuations can be quite different.
Unlike private sector final salary pension schemes which are funded, most public sector final salary pension schemes are unfunded. What does this mean? Well quite simply it means that the vast majority of public sector final salary pension schemes have no money in the pot. Nothing. Nada. Remarkable isn’t it? The Local Government Pension Scheme is a notable exception.
As most public sector pensions are unfunded they are valued differently to private sector schemes. As a result public sector pension transfer values tend to be low and do not reflect their true value. This is where a financial planner demonstrates his true value. Using cashflow planning software he can calculate the true value of a public sector final salary pension scheme by skilfully working with the cashflow projections from the scheme member’s pension. Such a higher valuation is a useful figure for use in a divorce settlement. Pensions specialist Financial planners are best placed to provide these independent valuations.
Currently there are 3 methods of taking into account pensions on divorce. These are;
Attachment to earnings orders.
Pension sharing orders.
An experienced financial planner can help you to decide which option suits you best.
So if you are unfortunate enough to need to get a divorce, you have pensions, and you need professional advice, remember you may well need the services of an expert pensions specialist financial planner. You know it makes sense.