A Cash Equivalent Transfer Value (CETV) is the amount your pension scheme will give you if you decide to transfer your pension. It is supposed to represent the value of the benefits you are giving up. If you don’t have yours yet you can use our simple calculator to get an estimate

How is my CETV Calculated

Your pension scheme administrators set your CETV using a calculation decided by the trustees. Things like your age, scheme retirement age, cost of living, life expectancy and whether you are married or single all have an impact on your transfer value.

It is also worth noting that Pension Scheme trustees have the right to adjust transfer values so they represent “fair value” and do not adversely affect other members. If the schemes funding position changes or lots of people transfer out in a short space of time, your CETV can fall.

WORKING OUT YOUR CASH EQUIVALENT TRANSFER VALUE

The amount being offered for Final Salary Pension Transfers varies hugely from scheme to scheme with some schemes offering as much as forty times your pensionable income. Industry averages are between 20 - 33 times pensionable income.

Some pension schemes will automatically update your CETV on your annual pension statement, in other schemes you will need to request it.

We have developed a Transfer Value calculator that you can use to give you a rough guide of what you could be offered but it is always best to request an estimate from your pensions scheme administrator.

Visit: 2020financial.co.uk/final-salary-pension-transfer-calculator

It's easy to get excited by a high transfer value and in the past there was much talk about 'multiples' and a 'good multiple'.

Recent years have seen transfer values soar and people receive over 33 times their annual projected pension as a cash equivalent transfer value. 

But it's important to remember that a high CETV does not automatically make it a good CETV

A good CETV is a transfer value that allows you to meet both your financial and lifestyle goals in retirement taking your personal circumstances into account.

Transferring out of your final salary pension is not always in your best interests, even if you have what you or others perceive as a 'good' CETV.

If you're not sure whether a transfer is right for you, check out our Definitive guide to Defined Benefit pension transfer or schedule a call with our pension transfer specialist.

Although Defined Benefit Pension Transfer values plummeted to their lowest levels as the global pandemic hit the UK in March. They rebounded to record their highest ever levels in July 2020 with the average transfer valued at £261,000.

Fears over stock market crashes, reduced life expectancy and falling Gilt value pushed transfers to their lowest levels since 2018 back in March.

Transfer values 2020: Pension Scheme Deficits Rise...then Fall

Pension Scheme deficits climbed to £290bn in March according to PwC Pension Funding Index, which correlates with the huge drop in transfer values as trustees acted to protect the longevity of the schemes and member benefits.

But as stock markets bounced back stronger, buoyed by optimisim over vaccine hopes, we saw transfer values continue to rise and deficits fall to £190bn, down from £340bn in August 2019.

The falling number of people opting to transfer may also be having a positive effect on transfer values as trustees continue to balance the books on historic pension scheme defecits.

There is hope that alternative funding and investment strategies for pension schemes could wipe out the current deficits the industry has seen over recent years.

You can read more about Why Pension transfer values are so high in our dedicated article here: https://www.2020financial.co.uk/why-are-final-salary-pension-transfer-values-so-high/

If your Final Salary pension is worth less than £30,000 you are free to transfer your pension yourself without seeking advice. 

If your transfer value is higher than £30,000 then it is a regulatory requirement that you seek ‘appropriate’ advice from a qualified pension transfer specialist. This means they will need to provide you with an in-depth report exploring your suitability to transfer and a personal recommendation to transfer or not.

Things a pension transfer specialist will consider:

• Your age
• Your financial situation and obligations
• Your long-term goals and motivations for transfer
• Any retirement plans you have
• Your general health and life expectancy
• Previous Investment experience
• Your understanding of and suitability for the risks involved in pension transfer
• Future Investment strategy

Almost all of the big pension providers and platforms now require you to have a positive recommendation to transfer. Which means, if a pension transfer specialist has deemed it not in your best interests to transfer, you may find it difficult to transfer your pension yourself. 

Whilst this might seem frustrating, these rules are designed to protect you and your pension in the long term.

Even if you are able to transfer your pension yourself you should be very careful about doing so. 

Whilst some pension providers make pension transfer sound like the sort of thing you can do over a cup of tea, doing so could prove extremely costly to your future.

Protecting valuable pension benefits

Defined Benefit pensions have incredibly valuable benefits attached to them which will be lost if you transfer.

Pension Benefits could include (but are not limited to):

• Protected pension age (for early retirement)
• Guaranteed income for life  
• Tax-free cash
• Life insurance
• Spouse/survivor's pension provision

So it's important to have a Pension Transfer Specialist take a look at your old pensions and make sure that you haven't missed something that you might regret giving up.

Better safe than sorry.

The problem with self-management & pensions

In the age of robo-advice and easy ways to invest, it might seem like a good idea to manage your pension yourself but the research makes for grim reading.

Research by Insurance giant Zurich found that almost 41% of those in drawdown without financial advice will run out of money in retirement.

The research found that​​​​​​​ a large percentage of self-investors were unprepared and uneducated about the risks they were taking on. Despite that many were choosing to go it alone without consulting a financial adviser. 

If your motivation for consolidating your pension yourself is to save money, you should consider the high cost of making a mistake and also look at the research published in 2019 showing that, even when you take fees into account, those who take Financial Advice end up on average nearly £50,000 better off over a decade.

For the vast majority or people, the answer to this question is generally, no. Final Salary Pensions provide valuable benefits that will be lost if you transfer out. And these benefits usually cannot be replaced on a like-for-like basis. For most people a Defined Benefit pension transfer is not in their best interests.

That said, whether or not you should transfer is entirely dependent on your individual circumstances and goals. It’s not possible to give you an answer to this questions without doing a full analysis of your situation.

As general guidance though there are factors that will make it more or less likely that a transfer would be suitable for you, which you can consider before you explore further.

1. Are you married or do you have dependent children?

   Defined benefit pensions don’t just provide a guaranteed income for life for you, DB schemes usually provide a survivor’s pension for your spouse or dependent children.

   If you’re not married and you don’t have any dependent children any money you’ve accumulated in your pension gets absorbed back into the pension scheme if you die, regardless of how long you have been taking your pension for.

   Find out more about what happens to your DB pension when you die

2. Do you have relevant investment experience?
3. Are you comfortable with investment risk?
4. Is your DB pension a supplementary income source that you could comfortably live without?
5. Is your DB pension protected by the PPF?
   
   Defined Benefit pension schemes in the UK are usually covered by the pension protection fund PPF, which protects Defined Benefit pension members if their pension fund becomes insolvent. It currently protects 90% of the value of members pensions (caps apply) and rises in line with inflation each year. The amount you can receive is capped but the majority of scheme members (99.5%) are not affected by this cap.

   If your sole motivation for transferring your Defined Benefit Pension is a concern over the future of your scheme, it’s important to understand if your scheme is covered or not, because if it is, then a transfer for this reason alone is not justifiable.

   Find out more about the Pension Protection Fund

6. Can you achieve your stated goals staying within your existing DB scheme?

   This year alone we’ve spoken to several individuals whose sole reason for seeking a transfer was because they were worried that their spouse would not be able to survive on a reduced spouse’s pension (usually 50% of a member’s DB pension). All were still in the 40s or early 50s with no ill health or reason to believe that they wouldn’t outlive their spouse.

   We were able to solve their problem whilst keeping them within the safety and security of their DB pension scheme by simply recommending an appropriate life insurance policy that would cover any shortfall in their spouses income in the event of their untimely death. This was a relatively low cost solution given the long-term cost and risk of transfer.

   Other examples of this include individuals who want to access tax-free cash at 55, who were able to find the money they needed through alternative sources. Sometimes, all it takes is a quick call with an expert to realise that there are alternative actions available to you.

Once you receive your CETV (cash equivalent transfer value, you have 3 months in which to decide whether you will transfer or not before that offer expires. It’s important that you factor in the time it will take to receive the advice you need. Ideally before or as soon you receive your CETV.

Across the industry it’s not uncommon to hear of defined benefit pension transfers taking up to 6 months, sometimes longer. 

Our streamlined process is far quicker than that and we can usually turn around your report and transfer recommendation in around 3-4 weeks as long as we have all of the information we need. 

It’s an in-depth process, but since you’ll always deal directly with our Qualified Pension Transfer Specialist, there won’t be any unexpected delays from our end. 

However, you should be aware that we may need to request additional information from your pension trustees in order to provide you with the advice you need and this may cause delays which are beyond our control. 

Delays in the pension transfer advice process could cause you to miss your CETV transfer deadline and will result in you having to request a new transfer value. Transfer values are subject to change so this could work for or against you.

There are a number of other factors that can affect how long a pension transfer might take including:

1. How quickly you can obtain your CETV
2. Whether you provide all of the required information to your financial advisor at the start
3. How quickly your pension scheme provides all of the required information to your financial advisor
4. How fast your financial advisor is able to work
5. How long it takes you to set up a new pension
6. How fast your new pension provider works to set up your pension once transferred.

In terms of our client’s experience, we work quickly to ensure that all the information is requested early on so we don’t have unnecessary delays later.

Simon Garber, 2020 Financial’s Pension Transfer Specialist says:

“In terms of getting the advice you need, I would say 3- 5 weeks is a realistic timescale, if you have your CETV available and are able to respond to our information requests quickly. But we have spoken to clients who have engaged financial advisors whose timescales are 3-6 months.

Following our initial checks on the information provided and our subsequent fact finding conversations, clients receive a Comprehensive Final Salary Pension Transfer Report. 

If you’re able to provide all of the information we need, you could expect to be in a position to decide whether a transfer is in your best interests within 3 weeks.  

At that point if you decide to go ahead we will then take you to the next stage of setting up your pension and doing the paperwork for the transfer.”

Our pension transfer specialist says:

“We find many people procrastinate when they receive their transfer value. They’ll come to us with only 2-3 weeks until their transfer values expires (CETVs are only valid for 3 months from date of issue). 

It’s simply not possible to request and receive all the information we need from the pensions trustees and the client within these timescales. 

There’s a misconception that Final Salary Transfer Advice is effectively a ‘box-ticking’ exercise which simply requires a pension transfer specialist to sign a declaration based on the client’s desire to transfer. This is not the case. 

I am required to provide detailed financial advice demonstrating a deep understanding of the client’s finances, goals, personal situation as well as analysing the pension benefits they are considering giving up. 

I must be confident that the transfer would allow them to meet their objectives. I’m also required to 

• Correct any misconceptions they may have, 
• Suggest alternative ways to meet their objectives and also
• Highlight any weaknesses in their retirement plans.

 It’s a complete life strategy.”

Transferring your Final Salary Pension to a personal pension arrangement may give you access to a large lump sum and offer you the freedom to invest and spend your pension pot as you see fit, but there can be significant costs and fees involved.

The full cost of a Final Salary pension transfer will depend on a number of factors:

• How much your pension is worth
• How much you pay for pension transfer advice,
• The costs of ongoing investments post transfer including any ongoing advice fees.

The value of your pension will usually affect how much a transfer costs you, since most work of this kind operates on a percentage of the value of your fund.

The cost of Pension transfer advice can range from advisor to advisor, so it’s worth shopping around to find the best deal for you, taking into account future advice costs and the costs of recommended products and associated platform charges.

Changes made by the Financial Conduct Authority in 2020 mean that contingent charging has now been banned. This means that you must be charged the same amount for advice whether you are recommended to or choose to transfer or not.

Regardless of who manages your money post-transfer you’ll be subject to investment costs depending on which investment products you choose.

The Financial Conduct Authority are the regulatory body that oversee financial advice in the UK.

It's their job to ensure that consumers get quality financial advice that safeguards their best interests.

If you want to find out what you should be looking for when it comes to receiving financial advice for your defined benefit pension transfer watch this helpful video below.