DELAYS in providing Public Service Pension CEVs for divorce purposes
Recently, a client of mine, using the pension on divorce chapter of our Divorce Manual to support her, recently sent me the email below having applied to her Public Service pension scheme (NHS) for a cash equivalent value for divorce purposes.
So, will she have to wait many more months for this pension info delaying her divorce for many months !
Heather Dunne, Pension Expert on Divorce (PODE) and member of the Compass Resolution Financial Mediation Team offers a potential solution with caveats and notes of caution.
Email from NHS
From: NHS pensions
Date: June 2023
To: XXXXXXXXXXXX
Subject: RE: urgent CETV request
Hello X,
Thank you for your email.
Following a change to the discount rate used for public service pension schemes that HM Treasury announced on 30 March 2023, the factors used to calculate transfer values for non-Club transfers and pensions on divorce will change.
We have been asked to suspend cash equivalent transfer value (CETV) calculations until we get the new factors.
This means we won’t be able to:
· Process new non-Club transfer in estimates
· Finalise non-Club transfers-in following receipt of payment
· Issue guaranteed CETV statements for non-Club transfers-out
· Issue CETVs for pensions on divorce purposes
· Implement pension sharing orders
Club transfers are not affected by this change.
Following the change to the discount rate used for public service pension scheme announced on 30 March 2023, the factors used to calculate CETVs for members transferring out of the scheme and for divorce purposes have been received.
We’re working to update our systems with the new factors.
We will keep members updated on the progress.
Kind regards,
NHS Pensions
I put this to a pension expert I work with, Heather Dunne who replied as followed (she has agreed to me using her email)
Reply from Heather Dunne- PODE
Heather Dunne- PODE
Unfortunately this impacts all public sector schemes at present.
Summary
I can still start work and make progress whilst we await the Public Sector Schemes revising their calculations and restarting providing figures, but we should probably wait for the new figure to finalise if the PSO is being applied against that scheme.
The more detailed explanation is set out below for your information and clarification for clients.
Background
All pension schemes are required to undertake a periodic review of the funding position and the associated factors for calculating early and late retirement, commutation for cash and transfer values.
Private sector schemesare obliged to undertake an Actuarial Review every three years and publish it within 15 months of the due date. The revised factors and transfer value basis are usually put in place in the subsequent months. The scheme administrators will generally continue providing figures on the old basis and make the alterations prior to the introduction of the new factors. There may be a delay or short (month to six week) period during which they do not supply transfer values whilst they do this.
The public sector are subject to differing requirements, as they are governed by legislation, as against trust rules and HMRC Registration Requirements. This reflects the fact they are statutory schemes, as against trusts, which means significant changes require secondary legislation or statutory instruments. They all share the actuarial services of the Government Actuary’s Department (GAD). GAD therefore undertake the review of all the schemes at the same time. There is a certain amount of similarity between them and the factors tables for each are produced in a similar format. They are all generally unfunded and so the pensions and costs are paid by arrangement with the Treasury, rather than from the fund as applies in the private sector. This wholesale Review of all the schemes therefore takes some time. They do not have to meet the same legislative requirements regarding publication timescales and or commercial pressure to be perceived as working efficiently.
The computer systems used by the various public sector schemes are also commissioned by the government rather than individual profit making companies. This does result in them generally having more cumbersome and less flexible systems, one might even suggest second rate versions. Again, within the private sector, if the consultancy firm looking after a scheme does not maintain technological development they will lose clients as they will either become more expensive or less efficient (not the case with public sector schemes).
Additionally of course, it is not possible to undertake a transfer (external transfers) from a public sector scheme – that option was removed as part of what is commonly called the Pension Freedom legislation in 2015. That means that issuing transfer values is a much less significant responsibility of public sector scheme administrators than private sector ones.
In short then it is absolutely normal for the public sector schemes to place a moratorium on transfer values and not issue any for several months.
Impact on PODE Reports- POTENTIAL SOLUTION
When considering Defined Benefit Schemes (Private pension/money purchase), I am usually asked to assess whether the Cash Equivalent Transfer Value is good value. That requires me to evaluate them in a different way. My usual methodology is to consider the annuity cost providing similar benefits. That enables me to directly compare the results with Defined Contribution Schemes.
In relation to all public sector schemes the transfer value will be disproportionately lower than that available from an equivalent private sector scheme. GAD consistently undervalue the cost of the benefits due. I’m not sure how much of that is actuarial or whether some government pressure is brought to bear to ensure costs are minimised.
This does mean I can undertake a large part of my computations using the value I attribute to the benefits, BUT if the PSO is to be applied to the person with the Public Sector scheme I do need a transfer value to work out what percentage applies. It is possible that the individual will have an old figure, which I can use, but it probably should be updated when a new figure is available.
BEWARE
The expectation is that when the Public Sector schemes recommence issuing figures they will be higher reflecting the gilt yields which were significantly lower until 2020. That will then mean that the proportionate PSO would be lower, so it will be relevant. Then again, in any other case, the percentage is set and the fact the CETV changes after the event one way or the other is ignored!
Hope this helps.
Heather Dunne ACII FPFS
The Pensions Experts