The Background
The Government announced on 19 May 2026 that the discount rate that public sector schemes use to calculate Cash Equivalent Values (CEVs), and by extension pension credit benefits, has increased. This means that the actuarial factors prepared by the Government Actuary Department (GAD) and used by PODEs such as ourselves, are subject to change. The GAD has currently suspended calculation of all CEVs for pensions on divorce, and the new factors will follow in due course.
What is the expected impact ?
Broadly, the change means that CEVs calculated for pension on divorce will reduce.
The reduction will vary by a number of factors, but in simplified terms could lead to reductions of up to around c4%for members at or very close to retirement age and c10% for members within20 years of retirement (and broadly something in between for members somewhere between 0 and 20 years from retirement).
Implications if the member spouse has any public sector pensions
The change means that, for any pension share that is due to be implemented after the new factors come into force, the CEV(s) used for implementation will be lower (by broadly the amounts discussed above) compared to those calculated using the ‘old’ factors (i.e. those in force prior to the announcement yesterday) – all other things being the same.
However, it is worth noting that as most1 public sector schemes only permit internal pension sharing, then the change will also impact the factors used to calculate pension credit benefits in broadly the opposing direction for internal shares.
This means that for an internal pension share, overall, a lower CEV may still give rise to a similar level of pension credit and therefore the calculated pension share(s) are likely to be similar to if recalculated on the new factors.
But…the position is a little more nuanced
However, there will be cases where this does not hold true, most notably where:
- There is a material gap between the age when the member spouse’s pension benefits come into payment and the age when the ex-spouse’s pension credit benefits come into payment (most typically this will be in the uniformed schemes).
- The share is calculated assuming an external transfer in certain LGPS2 cases. In such cases the ex-spouse receives a share of a lower CEV (compared to the same CEV calculated on the old factors). The change is also likely to make external implementation of pension credits arising from the LGPS slightly less beneficial.
- The interaction with the McCloud remedy and the new factors gives rise to additional complexities and considerations (in practice likely to be rare edge cases).
Is that everything ?
The change is likely to impact other factors, such as those used to adjust benefits paid early or late, but is generally anticipated to have a more modest impact on overall results. The true impact, however, will only be known with the benefit of the updated factors.
Implications if the ex-spouse only has public sector pensions which are not being shared
While the change would reduce the CEV calculated in respect of public sector benefits, the change does not directly impact the actual income (and/or lump sum), and so is not expected to have a material impact on outcomes (whether we are assessing income or capital).
What should you do for ongoing cases ?
Largely business as usual, as in many cases the change is likely to be broadly neutral on the calculated pension sharing outcomes.
However, it is worth taking into account the cases described above where this may not be the case.
1 The Local Government Pension Scheme is the exception as it offers the choice between an internal pension credit and an external transfer as well.
2 Depending on facts and circumstances of each case, as it may be more beneficial to both parties to implement an internal share, in which case similar arguments discussed for other public sector schemes