Those in receipt of benefits do not have an entitlement to a CETV. The pensioner cash equivalent can be calculated using the method and factors in this note, but should be used for divorce purposes only.
There are three sets of tables:
- Tables 703 and 713 - Pensioners who retired on grounds other than ill health
- Tables 723 and 733 - Pensioners who retired on ill health grounds
- Table 743 - Adjustment factors for certain pensioners under 55
The main differences between the two sets of tables are that the normal health tables allow for the pension increases being deferred to age 55, whereas the ill health tables allow for immediate pension increases, and also for the heavier mortality experienced by those who retire due to ill health.
The calculation date should be selected in line with the Cash Equivalents on Divorce: General Considerations section of this guidance note.
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 the Adjustments for Guaranteed Minimum Pension section of the guidance note, 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 should be calculated as:
CE = (P × FxP) + (S × FxS) - (Gpre + Fpost88gmp × Gpost) × FxG - (NI × FxNI) + Adj A + Adj B
where:
P = current member's pension - see Pension Benefits below
S = Survivor's pension payable on the death of the member to their spouse or civil partner, in respect of a post exit marriage (i.e. service after 6 April 1978 for a male member and after 6 April 1988 for a female member)
Gpre = annual GMP accrued before 6 April 1988, including revaluation to the calculation date or zero (for members who reached SPA on or after 6 April 2016)
Gpost = annual GMP accrued after 6 April 1988, including revaluation to the calculation date or zero (for members who reached SPA on or after 6 April 2016)
NI = National Insurance modification, where applicable - see National Insurance modification below
Adj A = see Adjustment A below
Adj B = see Adjustment B below
FxP = relevant gross pension factor for a member aged x
FxS = relevant survivor's pension factor for a member aged x
FxNI = relevant NI factor for National Insurance for a member aged x
FxG = relevant GMP factor for a member aged x
Fpost88gmp = 0.15 in all cases
The factors in the normal health tables run from age 50. Divorce cases where the member is under 50 and in receipt of benefits other than an ill-health pension should be referred to GAD.
The member's pension should be the current annual rate of pension payable and the survivor's pension should be the annual rate which would payable if the member died on the calculation date (for this purpose, it should be assumed that an eligible survivor exists). The last increase should be that awarded up to and including the April increase immediately before the calculation date.
See the Unusual cases section for more guidance on Continuing Annual Payments (CAPs) and Optants in payment.
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 the calculation of P above should exclude pension increases for the period between exit and April immediately before the calculation date inclusive. Allowance is made for this increase in Adjustment B.
If the member is over State Pension age and has a National Insurance modification, the pension used should be that after the deduction of the modification. In such cases, the NI factor (FxNI) should be set to zero, in the formula above.
If the member's pension is reduced because an option to allocate additional pension to the spouse was taken out, then the case should be referred to GAD.
A member might have exchanged lump sum for extra pension at retirement by inverse commuting or have bought added years. This extra pension should be taken into account in the cash equivalent calculation.
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.
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. Separate pre and post 1988 GMP figures need to be used.
Where the member has passed GMP Payment Age, the pre and post 1988 GMP amounts to use are the current annual amounts of GMP in payment. If the member has passed GMP Payment Age, and their GMP is not yet in payment, then the case should be referred to GAD.
Where needed, annual GMP figures can be obtained by multiplying the weekly GMP figures by 52. The sum of the GMP in respect of service up to 5 April 1988 and 15% of the GMP in respect of service after that date should be multiplied by the appropriate factor in the tables and the resulting figure used in the cash equivalent calculation.
In line with the Adjustments for Guaranteed Minimum Pension section of this guidance note, the pre-88 GMP (Gpre) and post-88 GMP (Gpost) should be set to zero when using the formula above to calculate the CETV for a member who reached State Pension age on or after 6 April 2016. This will affect the following groups of members:
- Males with a date of birth on or after 6 April 1951.
- Females with a date of birth on or after 6 April 1953.
An adjustment may be needed for National Insurance modification. This will apply where a member is under State Pension age.
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 should be applied to that amount.
This applies to:
- deferred members who took 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 date of leaving and date of retirement.
- members who retired prematurely below the age of 50 and who received part of their lump sum at retirement and asked to receive the remainder at age 50. Such pensioners will be entitled to a supplementary lump sum at age 55 representing the pension increases on the lump sum between date of retirement and age 50.
- members who retired prematurely who received part of their lump sum at retirement and who will receive the remainder of their lump sum at age 55.
For cases (1) and (2):
Adjustment A = increases on the lump sum to be paid at age 55 x fLS-A
where:
Increases on the lump sum to be paid at age 55 below represents the extra lump sum the member will receive (and not the lump sum already paid).
For case (3):
Adjustment A = lump sum to be paid at age 55 x fLS-A
where:
fLS-A comes from table 743 (Table 0-305A in the consolidated factors spreadsheet).
In practice, we expect that most cases where Adjustment A applies will fall under Optants and CAPs in the Unusual cases section and be referred to GAD.
This only applies to pensioners aged under 55 where the pension increases are deferred until age 55 (this will normally be the case for 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 fP-B
where:
PI represents the increase to the pension in £ for the period since exit, including the increase applied in the April prior to the calculation date. (NB use the monetary amount of increase in pension, not the percentage increase).
fP-B comes from table 743 (Table 0-305B in the consolidated factors spreadsheet).
In practice, we expect that most cases where Adjustment B applies will fall under Optants and CAPS in the Unusual cases section and be referred to GAD.
No adjustment for market conditions ("AMC") should be applied. Dummy values of 1.00 can be used for all AMCs to minimize any alternations to software.
