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Pension entitlements commonly undervalued, says report

Blind reliance on Cash Equivalent continues to be a major pitfall in financial remedy cases

The Telegraph reports a survey by Divorce LifeLine which claims that in as many as half of the 1.5 million divorce settlements in the UK since December 2000, the pension entitlements may have been undervalued.

The article states that hundreds of thousands of divorcees could benefit from a boost in retirement income following miscalculations of the valuation of the pension fund. 

David Salter, Joint National Head of Family Law at Mills & Reeve LLP and co-author of Pensions on Divorce Law Practice and Precedents (Lime Legal) commented to Family Law Week:

"I would agree that when pensions are dealt with by way of off-setting – that is adjusting the other forms of capital provision whether it is a transfer of the home or the payment of a lump sum – there is no set formula that solicitors negotiating a case or the court when reaching its decision can apply.  It is for this reason that many parties will instruct an actuary who can take many factors into account including accelerated payment, risk and tax, to mention but a few.  
"However, the greater area of undervaluation involves the blind reliance upon the "Cash Equivalent".  The Cash Equivalent is what a scheme would allow if a member were to transfer at the time the calculation is prepared.  There are many schemes particularly in the public sector where there are special factors which mean that the Cash Equivalent is not an adequate indicator of true value.  
"The best advice to a separating couple is to rely upon specialist legal advice from a solicitor who understands this area.  He or she will instruct an actuary where appropriate.  The cost of an actuarial report may not be unduly expensive in relation to the amount involved which in some cases may exceed the value of the family home.
"Another potential pitfall relates to the Additional State Pension, which is often totally ignored even though it can be shared on divorce and the value of which can in some instances run into six figures.
"The divorce courts are not going to allow settlements negotiated with the benefit of legal advice to be reopened because of an error in valuation, for example.  The remedy may lie in proceedings for negligence against the solicitor but this route is never clear cut because it is a rare divorce settlement where the pension is dealt with in isolation. The pension is usually one of many factors comprised in a financial settlement."