Pension credits from age 55

First some good news. In April ’09 the Government introduced a new statutory instrument, The Armed Forces Pension Scheme etc. (Amendment) Order 2009, that enabled pension credits to be taken early. This is welcome news and will greatly assist financial planning for divorcing couples in their late 40’s and 50’s.

Previously when pension sharing the pension credit had to be kept within the scheme until the credit member reached 65 when the pension could then be taken. The change means that the pension credit must be taken from age 55. Although the new instrument only refers to the 2005 scheme and for pension shares implemented after 6 April 2009, the administrators have told us that they are applying the age 55 rule for all pension credits.

For old pension credits, set-up to pay from age 65, the ability to take the pension early is optional and will be subject to an income reduction - based on actuarial factors. Solicitors may want to make previous clients aware of this change.

CETVs do not value Early Departure Payments

For members of the 2005 scheme their CETVs do not allow for Early Departure Payments, even if they could be taken immediately. This means for members who are aged between 39 and 55 who have completed 18 years service, their CETV only values a pension from age 65. This despite the fact that if they left they would receive a lump sum and between 50% and 75% of their pension immediately.

We recently reported on a soldier in this situation and valued his benefits, including his Early Departure Payments at £1.3m, compared to a CETV of £600,000.

CETVs are not appropriate valuations for use in divorce

The above is an extreme example of the fact that CETVs were not designed for use in the divorce process. They are the amount of cash a scheme will transfer out should a member leave. They ignore the fact that if the member stays in service just a few more years they might be eligible to take their pension early, rather than waiting until 60 or 65.

Some recent examples from our Express Pension Service include two 1975 Scheme cases, one where our appropriate value was £350,000 compared to a CETV of £110,000, another where our value was £600,000 and the CETV £410,000.

Distorted CETVs means distorted pension share percentages

As the CETV is used by schemes when implementing pension shares, then it should not be a surprise that a distorted CETV means a distorted percentage share is needed to obtain a fair result. In fact this is true generally, but more so with uniformed services schemes.

Hence to equalise income in two recent Armed Forces reports we had to recommend 63% and 75% percentage shares respectively.

Pension in Payment CEBs

Finally a straight plug that we can value Armed Forces pensions in payment, allowing for EDPs and level pre-55 income with the RPI catch-up at 55, for only £100+VAT. Cheaper than a CEB from the scheme for initial disclosure and as they are typically delivered within five working days you do not have to wait three months to get the answer.

Peter Moore

Managing Director

Bradshaw Dixon & Moore Ltd