The Value of Pension Expert Reports

Nov 19, 2014

I was reminded this week of why I recommend that Solicitors and clients specifically employ actuaries to undertake pension sharing and pension offsetting reports. And this inspired me to write this blog on pension expert reports.

At the moment there is a lot of choice when it comes to who to use for these reports and having spent many hours reviewing such reports I can tell you that there is a lot of difference in standards. Not only in the quality of the methodology used but also on the basic understanding of the underlying pension scheme make up. Don’t get me started on the number of errors in reports be they grammatical or mathematical. I am sure I will name and shame at some point!

I am going to cover this issue in more detail in a separate blog so for now I thought I would concentrate on two very positive outcomes from two pension sharing reports I reviewed this week. It should be noted these were two pension expert reports I was asked to review after they had been completed so I was not involved in the instruction letters nor were the actuaries involved the ones I would normally work with.

Pension Expert Reports – the cases

about1

The first actuary spotted an error in the calculation of the cash equivalent transfer value (sorry I am old school) in the wife’s pension. Effectively, the well known bank final salary scheme had overstated her pension cash equivalent transfer value by approximately £40,000. The reason for the error was the bank had used the wrong salary figures. Once the right ones were used the cash equivalent transfer value went south! Now I cannot say for sure that a non actuary pension expert wouldn’t have spotted this error but I suspect it would be unlikely. What I do know is that the actuaries I instruct usually start their calculations by trying to reconcile the cash equivalent transfer value with the pension statement and the benefits accrued to date and projected to normal retirement. This is how errors like this one are picked up and I doubt most non actuary pension experts bother themselves with this type of calculation.

The consequences in this case are important and worth noting. She is now likely to receive a pension share whereas previously she was not. The value in capital terms of the share (note an income equalisation calculation was undertaken) is approximately £55,000. This equates to a tax free lump sum (sorry pension commencement lump sum) of £13,750 and an ongoing pension of c. £2,000 per annum. If she goes for offsetting the figures suggested are between £30,000 and £50,000 dependent on the methodology used.

So by instructing the right expert with the right expertise the outcome for this client has been greatly improved. By luck or good judgement you and not a bad result for a total outlay of £500. One happy client when this was all pointed out.

Pension Expert Reports – conclusion

I have set out case 2’s numbers here to specially show how potentially valuable pension expert reports are to your clients. What is not often factored in is what the report actual means to the individual involved. Usually a client is asked to stump up the thick end of £500+ for their share of the costs of the report without understanding how it might benefit them.

retirement fund

As a financial planner this is the most important part of my job and I spend most of my time worrying about outcomes! With the benefit of experience I know that the outcomes produced by an actuary are going to be safer.

1. Capital Value Equalisation – Pension share required = £164,072.81 or a pension between £5,000 and £8,000 per annum.
2. Income Equalisation – Pension share required = £214,576.15 or a pension between £7,500 and £11,500 per annum.

Again, not a bad return for £500 in outlay and a much better places to start negotiations.

So for fairer, safer results who are you going to call?




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