When couples are dealing with the separation of their assets in the context of the divorce and separation, they will be advised to undergo the financial disclosure process and part of this is obtaining a Cash Equivalent Value (CEV).
Financial disclosure process
The point of this task, is to ensure that there is an accurate picture as to what is available for division – including property, cash and business assets and pensions.
Cash Equivalent Value explained
When it comes to evidencing the valuation of a pension, we will ask you to obtain a CEV – or Cash Equivalent Valuation. Sometimes this is also referred to as a Cash Equivalent Transfer Value.
Given that a pension is not readily available “cash”, we have to find a way of demonstrating its value, and this is what the CEV does. It gives the cash value of the pension arrangement if you were to hypothetically transfer out of your current scheme.
This figure is not therefore the forecast for the valuation at the point of retirement nor a projection as to what the pension might pay out on an annual basis, once in drawdown. The CEV is the value of the scheme as it stands today and the valuation assumes that the pension holder will leave service on the valuation date.
How is the Cash Equivalent Value calculated
The pension trustees of a particular scheme will calculate the CEV, taking into account various assumptions such as the investment market performance, inflation, your age, the scheme’s retirement age and life expectancy. For some occupational, defined benefit schemes the assumptions used to calculate the CEV are determined centrally by government.
Some other schemes, such as money purchase or defined contribution schemes do not require any assumptions as the CEV mirrors the value of pension fund on any specified date.
There is usually no charge for a CEV (provided the pension is not in payment) but if a further valuation is required with 12 months of that CEV, a charge will usually be applicable.
We will carefully go through all the steps needed to arrange for a CEV to be obtained in the context of financial disclosure. It is imperative that the issue of pensions and how they might be valued and possibly divided is discussed with us at the outset of any divorce and separation situation.
If you would like to discuss how a CEV could work for you, please get in touch and our expert Family team would be happy to advise you.