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We were approached by the solicitors representing Mrs P. Both parties were in their mid 50s, with Mr P continuing to work even though his retirement benefits from a previous employer were in payment. Mrs P was entitled to her state basic pension that she could expect when she is 60 as well as a pension income from a retirement annuity policy (RAPs) but she did not have a state earnings related pension scheme (SERPS) entitlement.

Mrs P's solicitor was minded to seek a pension sharing percentage representing 1/3rd of Mr P's retirement benefits but was concerned whether this would be perceived as being reasonable from the other party's perspective.

Pension audit
Mr P was receiving a pension income from a private sector scheme and at the point of retirement the benefits to Mr P were as follows (rounded to the nearest £100):

Pension income of £74,600 per annum;
Tax free lump sum of £230,000.

The scheme administrators had calculated and ascertained the cash equivalent transfer value (CETV) as follows (rounded to the nearest £1,000):

Total CETV of £1.585 million;
Protected rights proportion of £49,000.

In order to facilitate a settlement of 1/3rd of Mr P's retirement pension, the question was whether this would result in Mr P's pension income also being reduced by 1/3rd as it would be reasonable to assume. If only it were that simple! Whatever the reduction in the scheme members pension income, you need to know because whatever a solicitor seeks for their client must be perceived as being reasonable by the other party and their solicitor.

We provide a number of 'what if' scenarios to put you in a position of strength in order to optimise the settlement for your client. The court wishes to see an outcome that is reasonable from both parties point of view.

By obtaining 1/3rd of the CETV for the reduction in pension income for Mr P would be only 24.0%. The reason for this is due to the age of Mrs P being younger than Mr P and the fact that the life expectancy of women is greater than for men. Therefore one pound of income purchased for Mr P will cost less than one pound of income purchased for Mrs K. Statistically it has been shown that on average the wives of male scheme members are three years younger but on average the husbands of female members are only two years older!

The other point of this case is that the private sector scheme does not allow dual membership. This means that Mrs P could not make an internal transfer and had no choice but to make an external transfer to a private pension arrangement. This could have been to a compulsory purchase annuity, however at her young age a pension drawdown has allowed her take an income and defer the purchase of an annuity until a later date. This will allow for an improvement in annuity rates due to her age, possible improvement in the future rates due to economic factors and potential growth in the size of the fund to match the effect of inflation up until the point she decides to take an annuity.

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