What is a Cash Equivalent Value (CEV) and why does it matter?
Quick answer
A Cash Equivalent Value (CEV) is the pension provider’s estimate of what a pension is worth today. It is a useful starting point in divorce, but it may not show the true value of Defined Benefit pensions or the income they can provide.
Introduction
The Cash Equivalent Value (CEV) is usually the first figure requested when pensions are being considered in a divorce settlement, and it often becomes the starting point for discussions about pension sharing or offsetting against other assets. But the starting point is often all it should be.
A CEV can be helpful, but it can also be misleading if it is treated as the pension's full and final value, especially when it comes to defined benefit pensions.
What is a Cash Equivalent Value (CEV)?
The CEV is the amount your pension provider says your pension is worth today. If you were to move it somewhere else.
It's not a forecast of the monthly income you'll receive in the future. It's a lump sum figure, a present-day estimate of what your pension savings are worth, or what it would cost to recreate those benefits elsewhere.
This number is often used to help divide pensions fairly during a divorce. Whether you're:
Splitting the pension directly (with a Pension Sharing Order) or
Trading it off against other assets (offsetting)
…it's the figure most people start with.
Why are CEV’s misleading?
CEVs aren't always what they seem. Here's why:
A pension that promises £10,000 a year for life might have a CEV of £200,000. But buying that same guaranteed income yourself on the open market could easily cost £300,000 or more, especially for a younger person.
Public sector and Defined Benefit pensions are particularly prone to low CEVs that understate their true worth.
Two pensions with the same CEV can produce very different retirement incomes, depending on their type, guarantees, and when they're drawn.
That's why relying on the CEV alone can be risky, especially in more complex cases.
How do you get a CEV?
You ask your pension provider. Most will provide one free each year.
You may need to:
Fill in a form
Prove you're divorcing or separating
Wait a few weeks (4-12 is typical)
If you're working with a solicitor or a PODE, they can often request it for you, but they'll need a signed Letter of Authority first.
When is a CEV not enough?
In straightforward cases, the CEV can do the job. But where:
The pension includes a promised future income, guarantees or unusual benefits
The values are high or complex
Offsetting is being considered
It's wise to get input from a specialist. A pension on divorce expert (PODE) can value the pension properly and recommend what's fair.
The bottom line
A CEV is a helpful starting point. But it's not the full story.
If you want to avoid mistakes, or make sure you're not losing out, don't make big decisions based on one number alone.
FAQ’s
-
Not always, and this distinction matters enormously. For defined contribution pensions the CEV is usually a reasonable starting point. For defined benefit (final salary) pensions it can significantly understate the true value, because it reflects what the scheme would pay to transfer out, not what that promised retirement income would actually cost to replicate independently.
-
Yes. A CEV is typically valid for a limited period, often around three months, though this varies by scheme. Courts and pension experts will usually require a current figure, so if time has passed since yours was obtained you may need to request an updated one. Your solicitor or PODE can advise on timing.
-
Defined benefit pension schemes calculate the CEV based on what it would cost them to pay out, not what it would cost you to replace that income on the open market. The two figures can differ substantially. A guaranteed income for life from a public sector scheme, for example, may be worth considerably more in real terms than the CEV suggests. This is one of the main reasons a Full PODE report is recommended for defined benefit cases.
-
Most pension schemes will provide one free CEV per year. Beyond that there may be a charge. You will normally need to request it in writing and confirm the reason (divorce proceedings). If a PODE or solicitor is instructed, they can request it on your behalf with a signed Letter of Authority from you.
What to do next
If you've been given a pension value and aren't sure whether it tells the full story, or how it fits into a fair divorce settlement. Our free assessment is the best place to start.
