Pension split with my ex fell in value by £50k while scheme sorted it out

As part of my divorce settlement, I was granted a pension sharing order of my ex-husband’s pension.

Due to the pension admin team working from home and having no phone capabilities (I was told by customer service staff that they were only able to help by taking your details and emailing the relevant department), and the frustratingly long wait time for a response to any query I emailed, my CETV transfer has reduced from £121,000 to £71,000.

I asked if I could remain as a shadow member which took months to be considered, and eventually a ‘no’ answer was returned with no explanation as to why.

The delayed response (which they acknowledged and apologised for) I feel has resulted in me being financially worse off.

What are the reasons for not allowing me to remain rather than having to transfer my share to an external provider? Why has it dropped so much?

Why can they transfer monies without giving me an updated CETV transfer value, even though I requested it on numerous occasions? My plans as to where I would move the monies and investment may have differed had I known.

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 Steve Webb replies: Your ex-husband was a member of an occupational pension scheme which is due to pay him a set pension at scheme pension age.

As you probably know, there are two main ways in which the value of this pension can be taken into account at divorce.

– Your ex-husband could retain all of his pension but the value of his pension would be included in the divorce settlement so that you receive a bigger share of other matrimonial assets – for example, a higher proportion of the value of the family home. This is a process known as ‘offsetting’.

– You could have a pension share. There are two ways in which a pension share is implemented.

Internal share: You might become a member of your husband’s scheme in your own right, receiving a pension from the scheme. This is the approach often taken by public service pension schemes. However, the scheme is ordinarily *not* obliged to offer this if it does not wish to do so. It is a matter for the scheme.

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External share: You take a pension credit, which is a capital amount transferred out of your ex-husband’s occupational pension scheme into a pension arrangement in your name.

When your divorce settlement is being negotiated, the pension scheme will be asked to provide a ‘cash equivalent’ of the value of your ex-husband’s pension.

This is taken account of alongside other assets, such as the value of the family home.

The cash equivalent (also known as CETV or sometimes CE) does not always accurately value a defined benefit occupational scheme.

Therefore, it is very common in a divorce to get a financial expert to put a proper value on the defined benefit scheme and to provide calculations on how the pension may be shared in a fair way so that you each end up with similar amounts of pension income.

If you are concerned the cash equivalent may have changed considerably *before* the pension sharing order is agreed, then you should get an updated valuation.

If an actuary has been involved they should be asked to re-work their calculations. In this way, the final financial order is based on a reasonably up-to-date valuation.

However, there may still be a period of months between the date of the court order and it becoming effective in law (generally this is the later of 28 days after the court order, or the decree absolute).

Once the order has ‘taken effect’ you are a ‘pension credit member’ and the pension benefits on that day will be used later on when the pension share is actually ‘implemented’.

It is an imperfect comparison but the order ‘taking effect’ is a bit like when you have exchanged contracts on a house and the ‘implementation’ is the completion.

So, once the pension sharing order is completed, a new timeline begins.

The trustees have to receive from the parties all the information they need in order to implement the order, including payment of a fee.

Once this has been done, the ‘implementation period’ starts. The scheme then has four months to complete the process.

During the implementation period, the value of the pension may fluctuate (perhaps due to market conditions). This could work in your favour (the value might go up) but more recently this has been more likely to work against you (values have been going down).

You ask why the cash equivalent went down.

In simple terms, the transfer value is a measure of the cost to the scheme of providing the pension. 

Because the rate of return on the scheme’s assets is likely to have gone up sharply (for example, because interest rates have risen), the scheme can now get a better return, so it doesn’t need to hold as much to fund any given pension.

As a result, transfer values have fallen.

The one consolation is that if you were planning to use the transferred sum to buy an annuity or income for life, annuity rates have gone up sharply in recent months so you might be pleasantly surprised by the amount of pension you could still get for this reduced sum. 

Unfortunately for you, provided the scheme has met the four month deadline, there is nothing that you can do about fluctuations within that period.

However, if the scheme took more than four months, taking the implementation outside of the implementation period, and if you suffered additional falls in value as a result of changes which occurred later than four months, you might be able to make a complaint of ‘maladministration’.

This could ultimately be considered by the Pensions Ombudsman who might find that you had lost out because of undue delay and recommend compensation.

Before you can apply to the Pensions Ombudsman you usually have to exhaust any avenues of complaint provided by the pension scheme’s internal dispute resolution provisions.

You could also complain in any case to the Ombudsman about general poor standards of administration at the scheme, but in most such cases the most you could expect to get in response would be a token amount for ‘distress and inconvenience’.

The most important first step is for you to work out when the implementation period started and what happened in the timeline after that point.

A more complicated question would be whether the commencement of the implementation period was delayed by the pension trustee’s failure to promptly correspond with you about their refusal to allow an internal pension share.

But they may say that if their published guidance is that they do not offer this option, there was no reasonable basis for you not commencing the implementation period by stating where you wanted your pension credit externally transferred to.

Note: I am grateful to Rhys Taylor, a barrister specialising in pensions and divorce, for input into this column.