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  • Pension division question

    I was wondering if anyone could shed any light on this.

    Ex started a union job a year after we married. We separated approx 12 years later. The pension is a defined benefit plan.

    We're finally about to divide the pension and he wants to offer a buyout. Rather than pay the actuary (approx $700), he got his pension statement from our year of separation and wants to make an offer based on that statement.

    Does anyone know how big of a difference there would be between a pension statement and the actuary's calculation? Thanks for any insight.

  • #2
    Originally posted by Snowstorm View Post
    I was wondering if anyone could shed any light on this.

    Ex started a union job a year after we married. We separated approx 12 years later. The pension is a defined benefit plan.

    We're finally about to divide the pension and he wants to offer a buyout. Rather than pay the actuary (approx $700), he got his pension statement from our year of separation and wants to make an offer based on that statement.

    Does anyone know how big of a difference there would be between a pension statement and the actuary's calculation? Thanks for any insight.
    Do you mean he provided just some sort of annual report on the value of his pension? Or did he get the pension administrator to give him the value of the pension based on dates of marriage and separation? Some pension administrators will do that for free. The first, I wouldn't trust, but the second should be quite accurate.

    Comment


    • #3
      It all depends on the accumulated pension during work vs the admissible value during the marriage as per Family Law.

      First, the Actuary will determine the Primary Value of the Pension and then the Value for the purposes of family law. The primary value will be higher and that will be the amount stated on that statement. (for example, the value on my statement was 11200$ higher than the value to be divided).

      The other thing to consider is the amount to allocate for income tax. To arrive at this amount, the actuary has to calculate several possible scenarios taking into account the possible retirement ages normally 55, 60 and 65 years and to come up with a theoretical value. Then, based on the pension plan, he must estimate the probable tax rate of the participant at the age where he will withdraw his pension (is it 15%, 16,7%, 19,4% or 22%??).

      Once the amount is established, the participant can show the net value of the divisible pension in his assets in the Financial Statement or put the gross value in his assets and the amount related to income tax purposes in the debts section. The equation will give the same results but I recommend to show both values... the gross amount and the liability.

      In the end, if he does not want to use the services of an actuary who would determine a lower amount of the pension to be divided and he will not take taxes into account ... it's big sweet for you.

      Comment


      • #4
        Originally posted by Rioe View Post
        Do you mean he provided just some sort of annual report on the value of his pension? Or did he get the pension administrator to give him the value of the pension based on dates of marriage and separation? Some pension administrators will do that for free. The first, I wouldn't trust, but the second should be quite accurate.
        When he got his pension statement for 2016, he asked for a copy of the one he received in 2013 when we separated. I believe it's just a statement of his own contributions of the years to date, and he's pushing me to take a settlement based on that amount. I noticed afterwards that in small print it says that the company matches his contributions 100%, so I believe the total 2013 amount is double what he's showing me.

        My instincts are telling me to go through the proper channels with the actuary, but I don't think he'll like that idea.

        Comment


        • #5
          Originally posted by Snowstorm View Post
          When he got his pension statement for 2016, he asked for a copy of the one he received in 2013 when we separated. I believe it's just a statement of his own contributions of the years to date, and he's pushing me to take a settlement based on that amount. I noticed afterwards that in small print it says that the company matches his contributions 100%, so I believe the total 2013 amount is double what he's showing me.



          My instincts are telling me to go through the proper channels with the actuary, but I don't think he'll like that idea.


          My employer also mattes my contributions but the statement shows the total in the account. I don't believe you receive two separate statements. Would you be willing to pay half the cost of the evaluation since you will be getting basically half the pension? That may be a better way to do it to ensure you get correct numbers. But as stated above you may come out with less than what he is proposing


          Sent from my iPhone using Tapatalk

          Comment


          • #6
            I think you would be best to use actuary. Guestimating is rarely prudent. You don't know how long or how nasty your litigation will be.

            Comment


            • #7
              Originally posted by Berner_Faith View Post
              Would you be willing to pay half the cost of the evaluation since you will be getting basically half the pension?
              Absolutely I'd pay half. I'll likely have to pay the whole thing as he doesn't think it's fair that I'm entitled to any of it.

              Comment


              • #8
                Originally posted by arabian View Post
                I think you would be best to use actuary. Guestimating is rarely prudent. You don't know how long or how nasty your litigation will be.
                I think you're right about using the actuary. Thankfully we made our SA together 4 years ago and have been following it amicably since then. This is the only outstanding asset that needs to be divided. I've been afraid to rock the boat with it so far, but now he's initiating it so hopefully it will go smoothly!

                Comment


                • #9
                  Originally posted by Snowstorm View Post
                  Absolutely I'd pay half. I'll likely have to pay the whole thing as he doesn't think it's fair that I'm entitled to any of it.


                  I wouldn't pay the full amount... I would request the cost to be split... he shouldn't get out of paying for it just because he doesn't want to.


                  Sent from my iPhone using Tapatalk

                  Comment


                  • #10
                    The other thing to consider is the amount to allocate for income tax. To arrive at this amount, the actuary has to calculate several possible scenarios taking into account the possible retirement ages normally 55, 60 and 65 years and to come up with a theoretical value. Then, based on the pension plan, he must estimate the probable tax rate of the participant at the age where he will withdraw his pension (is it 15%, 16,7%, 19,4% or 22%??).

                    Once the amount is established, the participant can show the net value of the divisible pension in his assets in the Financial Statement or put the gross value in his assets and the amount related to income tax purposes in the debts section. The equation will give the same results but I recommend to show both values... the gross amount and the liability.

                    In the end, if he does not want to use the services of an actuary who would determine a lower amount of the pension to be divided and he will not take taxes into account ... it's big sweet for you.
                    I am confused as to why the tax rate matters. I thought that if the pension was to be divided, according to its future value, then does each party not pay their own tax on their portion, according to their own tax rate at the time the pension is paid out? Why would the tax rate of the original holder of the pension, matter to the spouse who is getting a portion for equalization? Excuse my ignorance, I am just beginning to learn about pensions.

                    Also: if the tax rate does matter: if the pension company does do up a statement that tells you the future value of the pension, then does this statement also include this information about tax rates, or is it better to hire an actuary? In otherwords, is this statement from the pension company adequate?

                    Comment


                    • #11
                      I am reading about pensions and very confused.

                      [QUOTEFirst, the Actuary will determine the Primary Value of the Pension and then the Value for the purposes of family law. The primary value will be higher and that will be the amount stated on that statement. (for example, the value on my statement was 11200$ higher than the value to be divided).
                      ][/QUOTE]

                      So the primary value is the value you see on the yearly statement? And this value on the yearly statement is usually lower than the value for family law purposes? Why is that? I thought if you had an actuary to the real calculation shouldnt it be more, because you are taking into account the growth of the pension over time until retirement and not just the length of the marriage?


                      After reading this thread I went back to look at the numbers on my property table and my pensions are just the value stated on the yearly statement which is my contributions and interest. I assume my ex is the same, but I havent seen his statement, only my lawyer has and put it into the table for me. Does it make a difference if the pensions are old ones not being conributed to? I have a little pension from when I worked years ago and it just sits there (5000$) so mine isnt worth much anyways. My ex's is much more, close to 200000 and it is active, so does this make a difference in how it is calculated for divorce purposes? Is there a benefit to keeping half of the pension over taking that amount in home equity? My first inclincation was to take the value in home equity instead. If you do split pension half, then do you have to deal with ex spouse later on when retire, or do you each deal with the split pension and the pension company separately?

                      Comment


                      • #12
                        another question, how do you know what percentage to reduce the pension by for tax? Is it 20,25,30%? Is it based on how much the pension holder currently earns? What if you earn different amounts? my ex and I are in very different tax brackets. Also on my table all the investments, inlcuding RRSPs all have a percentage taken off, is that correct?
                        Last edited by denbigh; 01-01-2018, 08:23 PM.

                        Comment


                        • #13
                          Originally posted by denbigh View Post
                          another question, how do you know what percentage to reduce the pension by for tax? Is it 20,25,30%? Is it based on how much the pension holder currently earns? What if you earn different amounts? my ex and I are in very different tax brackets. Also on my table all the investments, inlcuding RRSPs all have a percentage taken off, is that correct?


                          This is why you need to have the pension evaluated by an actuary. The value of the pension should be the value during the period of the marriage only. If you have accumulated a pension before marriage, it shouldn't show on your statement. So it is with what you have accumulated after the separation date (valuation date). If the total value of your ex pension (+/- 200k$) was during the time you were married, ask your ex to put the amount in her financial statement (as an asset) with the appropriate deduction for Notional tax purposes (debt section). That would be the tax level she would be paying at retirement. The actuary will do that calculation. You can argue it's 15% and she can argue it's 22% but the onus is on her to prove that so she needs to pay an actuary to do the maths. And don't pay for any actuary services, that's on her.


                          Once an actuary had determine the percentage for Notional tax based on the information provided to him, the same percentages should be used throughout the financial statements of both parties for all investments that can be withdrawn latter on. If you don't use an actuary, you and your ex must consent to use a tax level that are suitable to each of you. (this could be the bracket you think you will pay according to Revenue Canada when you retire. (eg. 15% for you and 18% for her).

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                          • #14
                            so the tax rate that is used, should be the tax rate that the higher income earning spouse, or the one with the bigger pension would have at the time of retirement? the lawyer used 25% on everything, does that seem high? Not sure where that number came from, I assumed it was a standard amount.

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                            • #15
                              I guest it's the other lawyer who use that rate hein? It is surely too high. Unless you are and your ex spouse making over 250K$ a year... which is not the case since the accumulated pension is only 200k$ and yours is lower than 10K$. Mine was evaluated at more than 350K$ for a period of 15 years of marriage and the actuary used a rate of about 18%. My ex is 15%. This is the rate you would be expected to pay at retirement.


                              I don't think the other party is reasonable in accounting Notional taxes at 25%. Ask them to consent at a rate ranging around 15% - 18%. If they don't, request that they submit the evaluation through an actuary. Too bad for them because this is at their cost. If they don't, file for a procedural motion as this is a disclosure on financial that is required.

                              Comment

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