Cash equivalent of divorce pension share (UK)?

Question

My, soon to be, ex-wife wants a cash lump sum instead of a share of my pension. I'm prepared to borrow money to raise the cash, but it will take me years at who knows what interest rate to pay it off. Obviously the cash amount should be less than the pension share, but how much less? 20%? 30%? Is there any standard formula?

Answer 1

Hi, this situation is very common in divorce and is known as off-setting, where the value of the pension is off set against other assets so the pension remains intact and is not shared. The pension provider should be able to provide you with the Cash Equivalent Transfer Value and your divorce solicitor should be able to advise you on what the appropriate amount is to be offset. This could be offset against the value of any property you own etc.

It is also worth bearing in mind that if she has any pension benefits in her own right, these should be taken into consideration too.

Hope this helps

Answer 2

Have a accountant, or an accounting student, compute the "Present Value of and annuity". The formula is well established in the financial world. Basically what they do is determine the amount you would have to deposit today, at a fixed interest rate (referred to as the 'discount rate') to earn enough to make the pension payments when you retire. Any good financial adviser can run the numbers in minutes. If I knew how long until you retire, the amount of your payments, and your life expectancy, I could run the numbers by hand in an hour or 2.

Answer 3

The whole idea of sharing the Pension is to make provision for her in Retirement ..

I doubt you will get away with "buying her out" .. as soon as she has spent the money she will be back to court again claiming 'poor advise' and asking them to give her a 'real' share of your pension ..

NB simplist calculations of NPV ignores the effect of Tax ..

Answer 4

I don't understand why the wife would be entitled to any money from the pension.