For doctors, dentists and other medical professionals going through divorce, an NHS pension can be one of their most significant financial assets. However, understanding how much a pension is worth and how it should be treated in a divorce settlement is not always straightforward.
A Cash Equivalent Transfer Value (CETV) is an important starting point when assessing pension assets during divorce proceedings. However, it does not necessarily tell the whole story. Understanding its limitations can be particularly important when negotiating a financial settlement involving an NHS pension.
What is a CETV in divorce proceedings?
A Cash Equivalent Transfer Value (CETV) is a monetary valuation of pension benefits calculated in accordance with the relevant pension scheme’s rules and actuarial assumptions.
During divorce proceedings, a CETV is commonly obtained as part of the financial disclosure process to help establish the value of each party’s pension assets. It provides a useful starting point for considering how pensions should be treated as part of the overall financial settlement.
However, a CETV should not automatically be treated as a definitive measure of a pension’s value for divorce purposes. This is particularly relevant to defined-benefit pensions, including many NHS pension arrangements, where retirement benefits are calculated under the scheme’s rules rather than being based solely on the value of an investment fund.
Why are NHS pensions different?
Unlike a defined-contribution pension, where retirement benefits depend largely on the value of an investment pot, a defined-benefit pension generally provides benefits calculated by reference to the scheme’s rules, which may take account of pensionable earnings and length of service.
The NHS Pension Scheme has operated under different arrangements, including the 1995, 2008 and 2015 schemes. A medical professional may have accrued benefits under more than one arrangement, making it important to understand the pension benefits involved when considering a divorce settlement.
Although a CETV provides a capital valuation, it does not necessarily demonstrate the full significance of the pension to the member’s retirement planning.
What are the limitations of a CETV?
There are several reasons why relying on a CETV alone may not provide a complete picture when dividing pension assets on divorce.
- Different pensions can produce different retirement outcomes. Two pensions with the same CETV may provide different retirement benefits. A defined-benefit NHS pension and a defined-contribution pension have different characteristics, and their headline capital values do not necessarily reflect the income each may provide in retirement.
- The parties’ individual circumstances matter. Their ages, anticipated retirement dates and existing pension provision may all affect how their pension assets should be treated. A doctor approaching retirement may have different financial priorities from a younger spouse with many years of employment ahead. Equally, a spouse who has taken time away from work to care for children may have accumulated significantly fewer pension benefits.
- Pension sharing and offsetting are not necessarily equivalent. A pension sharing order transfers a specified percentage of pension rights to the other party, subject to the relevant scheme rules. Pension offsetting, by contrast, allows one party to retain their pension while the other receives a greater share of other assets, such as equity in the family home.
Pension wealth is not necessarily equivalent to the same amount in property equity or cash. Pensions and non-pension assets differ in their accessibility, tax treatment and financial characteristics. A settlement that appears equal when comparing headline values may therefore produce different outcomes for each party in practice.
For these reasons, a CETV should be considered in the context of the parties’ wider financial circumstances rather than relied upon in isolation.
Should you instruct a Pension on Divorce Expert?
Where pensions represent a substantial proportion of the parties’ wealth, specialist pension advice may be appropriate.
A Pension on Divorce Expert (PODE) can assess the pension arrangements and advise on the implications of different settlement options, including pension sharing and offsetting. Depending on the circumstances, the expert may consider the pension benefits available to both parties, their ages and their anticipated retirement needs.
Expert advice is not necessary in every case. However, where a defined-benefit pension is involved, particularly a substantial NHS pension, it can help the parties understand their options before reaching an agreement. A solicitor is able to advise you on whether a PODE is appropriate in your matter.
Divorce advice for doctors and medical professionals
Pensions can be among the most significant and technically complex assets involved in divorce proceedings. For doctors, dentists and other medical professionals with substantial NHS pension benefits, understanding the limitations of a CETV can help ensure that important issues are not overlooked.
At Nockolds, our family law team advises clients on complex financial settlements, including cases involving substantial pension assets. We can help you understand the information required, consider the available options and establish whether specialist pension advice may be appropriate.