Issues for the family lawyer

1 in 5 of us are obese. 1 in 4 of us smoke. 1 in 6 of us have an adverse family history. All these factors mean that a lot of us are in less than perfect health. Less than perfect health may mean a shorter working life and earlier death.

This article explores the effect of less than perfect health on both the valuation of pension assets.

 
Extreme ill-health
The extreme ill-health of one party in a divorce or dissolution has many implications, which are generally recognised. In addition to the greater emotional issues, the needs of the ill person might be very high, albeit for possibly a limited time. This may impact on the shape of the final settlement.

Where the person cannot carry on working an ill-health, early-retirement pension may have been, or imminently will be, paid. This may be for an enhanced income compared to the normal pension accrued to date. This pension may be payable for a shorter period, for example in the event of cancer, or for nearer to a normal life expectancy, for example on leaving work due to a mental problem.

Careful actuarial consideration of the value of the pension assets is needed in this situation. Such advice could also cover insurance policies, which are now more likely to be paid out.

Less than perfect health
Less well understood is the implication of one or both parties being in less than perfect health. Obesity, smoking and an adverse family history are potential issues, as are other illnesses and injuries.

A certain amount of wear and tear is to be expected as we get older, as is an inevitable tendency to fill-out a little. Therefore, we should not worry about every ache and pain of our clients, nor feel the need to quiz them on intimate medical details.

The impact of ill-health on pensions
Ill-health lowers life expectancy and hence the time over which a pension will be paid. Therefore, the value of a pension of someone in ill-health is less then an equivalent pension for someone in average or better health.

For example, someone in ill-health as defined above might be expected to experience twice the rate of mortality of the average. The value of a pension of £20,000 per annum to them at retirement to them might only be £375,000, compared to a value of £450,000 for someone in good health.

Nigel Bradshaw MA, FIA is Chairman and Design Director of Bradshaw, Dixon & Moore Ltd.

© Bradshaw Dixon & Moore Ltd - Jan 2008

We would really like to hear your views on this subject. If you have relevant practical experiences that would be of interest to others, we would be happy to publish them here.

Please use the comments facility, or email us at ancillaryactuary@bradshawdixonmoore.com.