Those in receipt of benefits do not have an entitlement to a cash equivalent transfer value. The pensioner cash equivalent can be calculated using the method in this guidance, but these should be used for divorce purposes only.
The following sets of tables are used in the calculation of pensioner cash equivalents:
Table DIV1 | Pensioners who retired for any reason other than ill-health grounds |
Table DIV2 | Pensioners who retired on ill-health grounds |
Table DIV4 and DIV5 | Adjustment factors for pensioners under age 55 |
Separate tables are required for pensioners who retired due to ill health to reflect shortened expectations of life and to allow for immediate pension increases.
The calculation date should be selected in line with the approach set out in Cash equivalents on divorce: general considerations.
The status of the member, the member's age last birthday and the benefits to be valued should all be taken at the calculation date. Further details on the benefits to be used are set out below.
In line with Adjustments for Guaranteed Minimum Pension, GMP adjustments should not be applied to calculations for members who reach State Pension age on or after 6 April 2016.
For these members, calculations should be undertaken using the methodology set out below, but with any GMP (pre or post 1988) set to zero.
The pensioner cash equivalent for a member who retired for any reason other than ill health should be calculated as follows:
Pensioner cash equivalent (not ill health) =
(Current Member's Pension x Factor DIV1A)
+ (Survivor Pension payable on the death of the member x Factor DIV1B)
- [(Annual Pre 88 GMP* + 0.15** x Annual Post 88 GMP*) x Factor DIV1C]
- (National Insurance Modification (if any) x Factor DIV1D)
+ Adjustment A (see section on Adjustment A below)
+ Adjustment B (see section on Adjustment B below)
* Annual Pre 88 GMP and Annual Post 88 GMP should be set to zero for members who reach State Pension age on or after 6 April 2016
** applies for both men and women
The appropriate factors should be taken from Table DIV1 for the member's age last birthday at date of calculation. The appropriate factor from Table DIV1C will also depend on the sex of the member. Note Factor DIV1D is zero at age 65 (men) and 60 (women) and above.
The pensioner cash equivalent for a member who retired due to ill health should be calculated as follows:
Pensioner cash equivalent (ill health) =
(Current Member's Pension x Factor DIV2A)
+ (Survivor Pension payable on the death of the member x Factor DIV2B)
- [(Annual Pre 88 GMP* + 0.15** x Annual Post 88 GMP*) x Factor DIV2C]
- (National Insurance Modification (if any) x Factor DIV2D)
* Annual Pre 88 GMP and Annual Post 88 GMP should be set to zero for members who reach State Pension age on or after 6 April 2016
** applies for both men and women
The appropriate factors should be taken from Table DIV2 for the member's age last birthday at date of calculation. The appropriate factor from Table DIV2C will also depend on the sex of the member. Note Factor DIV1D is zero at age 65 (men) and 60 (women) and above.
Pension benefits:
- The member's pension should be the rate of pension in payment. The last increase should be that awarded up to and including the April increase immediately before the calculation date.
- Where GMP amounts are required to be used in the calculations, they should be revalued/increased to the calculation date.
- A member who is under age 55, who retired on grounds other than ill health, does not receive index linking until age 55. In these cases, the pension used for 'Current member's pension' above should exclude pension increases for the period between exit and the April immediately before the calculation date, inclusive. Allowance is made for this increase in Adjustment B.
- If the member is over State Pension age (SPA), and has a National Insurance (NI) modification, the pension used should be that after the deduction of the modification. Factor DIV1D / DIV2D is zero at age 65 (men) and 60 (women) and above.
- If the member's pension has been reduced because an allocation option was taken out, then the pension actually in payment (i.e. after the reduction) should be used (including subsequent pension increases) and the pension payable on the member's death should include any increase due to the allocation option.
- If allocation has been made to a child or another dependant other than the eligible partner, please refer to GAD.
- If the member's pension is reduced due to abatement, then the abatement reduction should be ignored for the purpose of this calculation. Benefits should be calculated as though the member had ceased re-employment on the date of calculation and valued accordingly.
- If the member's pension has been reduced due to Scheme Pays, then the pension after this reduction (debit) should be used. However, cases involving compulsory early retirement where the implementation of the pension debit has been deferred should be referred to GAD.
National Insurance modification:
- An adjustment to the pensioner cash equivalent is applied in respect of any National Insurance modification. This may apply where the member left service prior to 1 April 1995 and is under SPA at the date of calculation.
- The amount of National Insurance modification (if any) should be expressed as an annual rate and increased in line with the pension increases awarded between leaving and the April prior to the date of calculation inclusive. The relevant factor from Table DIV1 or DIV2 should then be applied to that amount (based on age last birthday at the date of calculation). Factors are set to zero beyond SPA and the 'after modification' member's pension should be taken into account for the calculation.
Guaranteed Minimum Pension:
- For members who reached State Pension age before 6 April 2016, the cash equivalent must be adjusted to reflect increases on the Guaranteed Minimum Pension (GMP) that are the responsibility of the State. These comprise all increases on pre-April 1988 GMPs and increases above 3% pa on the post-April 1988 GMPs. A different adjustment is therefore appropriate for pre and post-1988 GMPs.
- Where the member has yet to retire, or retired after GMP payment age (i.e. 65 for men or 60 for women), the GMP should include any late retirement increases from GMP payment age to calculation date (if yet to retire) or from GMP payment age to date of retirement (if already in payment). Late retirement increases are due at a rate of 1/7% per week plus (for post-88 GMP) PI up to 3% pa up to the April preceding the calculation date.
This adjustment only applies to former deferred pensioners who took actuarially-reduced early retirement or retirement on compassionate grounds and are aged less than 55. Such pensioners will be entitled to a supplementary lump sum at age 55 representing the pension increases on the lump sum between their date of leaving and date of retirement. The "Increases on the lump sum to be paid at age 55" below, should represent the extra lump sum the member will receive, not the lump sum already paid.
Adjustment A = Increases on the lump sum to be paid at age 55 x Factor DIV4
The appropriate factors should be taken from Table DIV4 for the member's age last birthday at date of calculation.
This adjustment only applies to pensioners aged under 55 where the pension increases are deferred until age 55 (i.e. all pensioners under age 55 except those who have retired due to ill health). At age 55, the pension will increase up to the level it would have been if it had been index-linked since retirement.
Adjustment B = PI x Factor DIV5
Where:
PI represents the increase to the pension for the period since exit, including the increase applied in the April prior to the calculation date. (This should use the extra pension, not the percentage increase.)
The appropriate factors should be taken from Table DIV5 for the member's age last birthday at date of calculation.
