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   Pension audit report
  Who can benefit from a pension audit?
  When is a pension audit necessary?
  Does the court accept expert evidence?
  Who can carry out a pension audit?
  When during divorce procedures would a pension audit start?
  Can both parties appoint their own pensions expert?
  How do you choose a single pensions expert?
  How is a pensions expert remunerated?
 
  What information will a valuation report provide?

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Who can benefit from a pension audit?
In particular, in cases of divorce after one year where your spouse has greater pension provisions than you in a final salary pension or a public service scheme such as civil service, NHS, teachers, police, fire services or armed forces.

This is especially the case if they have been in public service all their working life, and in particular are now aged 45 or over.
Also, if you are 4 or more years younger than your spouse, you are likely to be a particular beneficiary of a pension audit.

If you are not sure, use the analysis rating table. This will show you if your spouse's pension arrangements are an A (significant) rating or B (moderating) where you would benefit from a pension audit report. On the other hand, if you have a rating of C (negligible) or D (no benefit) then the cash equivalent transfer value (CETV) from the provider should be used.


When is a pension audit necessary?
For pension sharing the prescribed method of valuing the retirement benefits is the cash equivalent transfer value (CETV). However, in cases where the pension arrangements are complex such as a defined benefit scheme and the value of the benefits significant relative to other matrimonial assets and in absolute terms, the CETV Method is unlikely to reflect a fair value of the members pension rights.

On many occasions a member of an occupational pension such as a public service scheme may already be receiving a pension income and a different approach to the providers CETV will have to be used. In these cases expert evidence from an independent financial adviser (IFA), that is qualified as a pensions expert, can be provided in a pension audit to determine a fair value of the retirement benefits.

Here the CETV from the provider will be used as a basis for the valuation in order to arrive at an adjusted CETV that reflects the circumstances and specific needs of the parties on divorce.


Does the court accept expert evidence?
There are certain conditions where expert evidence will be accepted by the court. Under the Matrimonial Causes Act 1973 (MCA 73) the court will work with the couple on divorce to achieve a clean break. If agreement is reached between the couple through their solicitors to use a single pensions expert to determine a fair value of the members pension rights, then the court will accept this expert evidence and the parties wishes.

If no such agreement has been reached by the parties, then at the first appointment during ancillary relief proceedings the court will consider the pension arrangements and have regard to rule 2.51B of the Family Proceedings Rules 1991 as is shown in the step-by-step guide. Only if the court considered the retirement benefits to be complex and significant relative to other matrimonial assets would it require expert evidence in the form of a pension audit. The court would also have to be satisfied that the extra cost incurred by the pension audit was justified.


Who can carry out a pension audit?
The Financial Services and Markets Act 2000 (FSMA) came into force from midnight on the 30 November 2001 and this now means that only a person authorised directly by the Financial Services Authority (FSA) can give advice in investments and pensions. The majority of family law firms have opted to be designated as exempt professional firms and this means that the work they do will not be regulated activity. An IFA regulated by the FSA can give advice on the pensions and investment aspect of a divorce.

Where a pension audit is required, that IFA should be qualified as a pensions expert and have the G60 Pensions or equivalent. This is recognised under permitted activity 13 of the FSA Handbook of Rules and Guidance as being essential when advising on complex pension arrangements in occupational pension schemes where an external transfer could occur as a result of a pension sharing order, even if this is by default because the existing scheme does not offer dual membership and in effect no advice appears to be given.


When during divorce procedures would a pension audit start?
Assuming there are complex and significant pension arrangements in a defined benefit scheme that justify the use of a pensions expert, a pension audit should start as early as possible when the parties are involved in ancillary relief proceedings. As the step-by-step guide shows, this starts will an application being made to the court.

This could be after the divorce procedure is final but certainly sometime after the court has granted the decree nisi is granted. The parties should come to an agreement through their solicitors to appoint a single pensions expert after the petitioner has applied for a financial order to divide the matrimonial assets but before the first appointment.

This should be done before agreement is reached about the other matrimonial assets as the fair value of the members retirement benefits as a fully valued CETV may be much higher than the CETV from the scheme administrator and therefore have an important impact on the division of all assets. At the first appointment if the parties have not come to an agreement over expert evidence the court will determine if further information is required and if necessary, the powers of the court can instruct that a single pensions expert provides evidence.


Can both parties appoint their own pensions expert?
Both parties could appoint their own pensions expert during ancillary relief proceedings, however, by the final hearing the court will expect any expert evidence to be provided by a single pensions expert. In the early stages two pensions experts mean that the parties will have an extra cost in valuing the retirement benefits. If the parties could come to an agreement through their solicitors to use one pensions expert to calculate a fair value, this would keep the costs down.

If the parties use their own experts and different values are reached for the retirement benefits, this will create animosity between the parties, prolong the legal process and increase costs further. Ultimately if the parties cannot agree on a single pensions expert either at the first appointment or at financial dispute resolution (FDR) the court will apply its power under part 35 of the Civil Procedure Rules 1998 to instruct that expert evidence be given by a single pensions expert as the step-by-step guide shows, thereby negating the action to have two pension experts in the first place.


How do you choose a single pensions expert?
Firstly there must be agreement between the parties through their solicitors to use a single pensions expert. The pensions expert will usually be an independent financial adviser with the qualification of G60 Pensions or equivalent and regulated by the Financial Services Authority. The parties should also have sufficient confidence that the pensions expert is knowledgeable in the area of pensions on divorce.

The pensions expert could be one that is recommended through the solicitors of the parties or selected by the parties independently and instructed to work with solicitors when conducting the pension audit. To keep the costs down, the parties should find a pensions expert that will undertake the pension audit on a fixed fee basis as often there will be additional work to be performed after the valuation report is completed.


How is a pensions expert remunerated?
For work done on a pension audit during divorce to determine a fair value of the retirement benefits, the pensions expert will be remunerated by way of a fee. To keep the costs down both the parties should select a single pensions expert that will usually be an independent financial adviser that will work on a fixed fee basis.

This means that if after the valuation report is completed and further work is required from the IFA (because the parties may now have to re-negotiate the share of matrimonial assets) at least there will be no further costs from the IFA. If an IFA charges on an initial fee plus basis and further calculations are required, then this could easily increase the costs to both parties.

Where the parties agree to appoint a single pensions expert the cost of the pension audit is split between both parties, unless agreed otherwise, and the fee can be paid directly to the IFA or via the solicitors when work is completed.


How much will it cost?
If after using the analysis rating table it show your spouse's pension arrangements are an A (significant) rating or B (moderating), you would benefit from a pension audit report, and you should expect a report to cost approximately £1,000 plus vat.


What information will a valuation report provide?
The valuation report will reflect the requirement of the parties as well as to determine a fair value of the retirement benefits.The report will show the fair value for all the pension arrangements of the parties as a suitably adjusted CETV, this being based on the cash equivalent transfer value obtained from the provider. For a defined benefit final salary pension the details of all benefits including the funding position of the occupational pension scheme will be reflected in the fair value.

The benefits will be shown in terms of applying to earmarking and also to pension sharing. Whatever the requirements of the parties for a percentage of retirement benefits, for each scenario required the members reduced benefits will also be shown . For pension sharing the report will also indicate whether the former spouse is allowed dual membership or if only an external transfer is permitted.

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