How is the value of your pension share calculated?

During your divorce negotiations both you and your spouse will have obtained a valuation for each of your pensions.  The date of this valuation must be within 12 months of the hearing date.

Clients will often rely on this figure as the value of the pension that is to be shared. They apply the sharing percentage and assume this represents the share they have been awarded.  They are therefore confused if the pension share they receive at a later date is a different amount. For example, if your ex-husband has a pension of £100,000 and you are awarded a 50% share, you would automatically assume your share would be £50,000. However, this is incorrect.

The initial valuation provided for your disclosure purposes is simply the value of the pension on a specific date (known as the valuation date.) This is used as a guide when agreeing the finances. Think of it in the same way that the value of your house will increase or decrease over the period of your negotiations.

The pension value you actually receive will depend on two further dates: the transfer day and the valuation day.

The transfer day represents the effective date of a pension sharing order. This is the later of 28 days after the order is awarded or the date of the decree absolute if later. This date signifies the date when benefits stop accruing.

What this means is that if the pension is a defined benefit salary the pension share will be based on service and salary as at the transfer date. If the pension is a defined contribution pension, any contributions after transfer date will be excluded.

Similarly if the pension is in drawdown, any payments made from the pension post transfer date need to be added back for the calculation.

The valuation day is a date within four months of the administrator receiving all the necessary documentation and necessary fees. This is the date when the fund is actually valued in order to be transferred to the spouse.

In other words, pension administrators will look at the unit holding on transfer day, and then apply the unit price on valuation day.

If the spouse who has been awarded the pension sharing order delays in implementing it, they will not benefit from any further contributions in a defined contribution scheme or any further increases in salary or service in a defined benefit scheme.

You can read “How I saved my client £50,000“ to see the effect of knowing these rules.

If you are going through divorce and would like an initial no obligation discussion please do contact me on 01932 698150.

photo credit: Flickr/Oakley Originals