The new transfer value regulations ^[1] came into force on 1^st October 2008. Generally, CETVs for salary related schemes calculated on the new basis are higher. The regulations do not change the method used for valuing money purchase benefits. Most private sector pension schemes were ready for the change and delays were minimised, although some observers have suggested that there are an unusual number of CETVs calculated in late September 2008 as backlogs were cleared.

The legislation only applies to private sector pension schemes. However, the consultation paper, which introduced the draft legislation, stated that guidance for the public sector schemes would be published in due course. On 11 September 2008, HM Treasury published guidance ^[2] that applies to all unfunded public service pension schemes and to the Local Government Pension Schemes. Although it too has an effective date of 1^st October 2008, not all schemes were able to respond last year. The result has been delays in obtaining CETVs. Indeed for certain schemes CETVs have only recently begun to filter through again. As with the private sector schemes, the CETVs are higher.

Although the legislative and guidance changes are specific to CETVs, the fundamental changes mean that CEBs will also be affected and will increase. Less obvious is the affect on the factors schemes use to convert CETVs into annual pension credits. These are the pension scheme equivalent of commercial annuity factors, so they are important when an internal credit is made from a pension sharing order.

If you are hoping that post October 2008 CETVs would be fair and appropriate values for use in divorce, you will be disappointed. The six underlying reasons why CETVs are inappropriate for valuing final salary pensions remain; it is just that generally CETVs have increased a bit.

It is inevitable that some cases will straddle the critical basis change date, with CETVs calculated prior to 1^st October not yet reaching a conclusion. There is no one answer to what you should do in such cases; it depends on several factors, such as which party you act for, the type of scheme, the nature of the settlement and possibly also the amount of the CETV. We have a simple decision tree that can help you decide what to do in such cases. If you would like a copy of this sent to you as a pdf email attachment please click here to submit an on-line form.

•1 Occupational Pension Schemes (Transfer Values) (Amendment) Regulations 2008

•2 “Basis for setting the discount rate for calculating cash equivalent transfer values payable by public service pension schemes” HM Treasury