There is no standard methodology for assessing the Offsetting Value. That is confirmed by the Pension Advisory Group (PAG) Guidance, which is basically the handbook for Pension on Divorce Experts (PODEs) and the solicitors instructing them.

To see the PAG Guidance, please refer to:

https://www.nuffieldfoundation.org/wp-content/uploads/2023/A-guide-to-the-treatment-of-pensions-on-divorce-2nd-edition.pdf

How I assess the Offsetting Value:

• Take the benefits provided by the scheme and revalue in accord with the scheme rules.

With the most schemes, that means revaluing them in line with Consumer Prices Index (CPI) for each complete year between the date the figures are set and the Normal Retirement Age. That results in an estimated pension figure at Normal Retirement Age.

• I then calculate the maximum Tax Free Cash available allowing for any Tax Free Cash in addition, provided by the scheme. I then calculate the residual pension post commutation. Within all of these calculations, I use the Commutation Factors currently in force.
• I then assess the cost of purchasing that level of residual pension at the Normal Retirement Age using current annuity rates.
• The pension will be taxable in payment and so I adjust that value, deducting 20% to allow for the Basic Rate of Income Tax due. This reflects the fact the PAG Guidance indicates it is preferable to assume both parties are subject to the same rate of tax.
• I add the Tax Free Cash sum to the net pension cost, to arrive at an overall cost at Normal Retirement Age.
• I then calculate the net present value i.e. the amount required now to grow to that cost at retirement. As this is a pension, I use the Financial Conduct Authority median rate assumption for a tax efficient savings vehicle, which basically means a pension or an ISA. That is 5% per annum. I also make an allowance for charges at 1% per annum.
• I then adjust that net present to allow for the tax relief which would be granted on a personal contribution to a pension plan. Individual contributions to a pension receive 20% tax relief, meaning a contribution of £80 will result in £100 being held in the fund.

The various assumptions used in this process are set out in Appendix One of my report and are consistent with those used in every other calculation. I have incorporated them here for clarity

In my view, the Offsetting calculation is designed to reflect the cost of the benefit the member is replacing via the offsetting payment, the pension they will not now be losing.

That Offsetting calculation is not therefore affected by the alternative use proposed by the other party.

Generally the other party will not be investing it for pension purposes, and so this may seem inequitable. However, the Offsetting Value should be what the pension holder would need to pay to replace the pension he would otherwise be sharing under the Pension Sharing Order. That is the value which they are retaining by paying an Offsetting sum to the other party