Updated: Nov 2, 2020
Are your colleagues transferring out of their final salary pensions?
You may have heard of a Cash Equivalent Transfer Value, often abbreviated to CETV, or transfer value, but what exactly does this mean? And what does it mean in relation to your pension?
This article will briefly cover what a Cash Equivalent Transfer Value (CETV) is, what it means for your pension, which factors affect its calculation and so on.
As you may know, a final salary pension, often referred to as a defined benefit pension, is a type of arrangement that guarantees an annual income based on years of service and salary.
Simply put, a CETV is the total sum offered by your pension scheme in exchange for surrendering the annual income accrued throughout your service. Members of defined benefit pension schemes have the option to accept the transfer value and move the funds into a pension of their choosing.
The offer is calculated by placing a cash value on your final salary benefits. Numerous factors come into play when the calculations take place including interest rates, gilt yields and scheme funding levels, in addition to many more.
It’s reasonable to expect a CETV to be 20-25 years’ worth of annual pension, however in recent years due to consistent reductions in interest rates, CETV’s have hit record highs with quotations offering multiples in excess of 50 years’ worth of annual pension.
A Cash Equivalent Transfer Value will usually also provide a statement of entitlement detailing the breakdown of benefits due upon retirement should you choose to stay in the scheme. The statement of entitlement will usually also provide information on how your pension is index linked and subsequently what growth can be expected from the pension year on year.
A CETV can be requested from your defined benefit pension administrator completely free of charge once every 12 months. These quotations are then guaranteed for a further 3 months from their date of issue should you decide to accept the offer.
Some schemes will generate additional CETVs throughout the year free of charge, though most will charge an administration fee to do so.
If you have a defined contribution pension, often referred to as a money purchase pension, the transfer value is usually not guaranteed and can fluctuate depending on the value of the underlying investments in which your pension is held. Members will usually be able to access this information via their administrators chosen portal as often as they choose without charge.
It’s important to note that requesting and receiving a CETV for your final salary pension doesn’t mean you’ll be making any long term decisions – it’s simply a quotation that you can review and decide what to do with.
In cases where valuations are over £30,000, you will be required to seek advice from an FCA-regulated financial advisor, who will be able to provide qualified advice to ensure that you make the best decision for your financial future. In any case, whether you are considering the transfer of a final salary or money purchase pension, it is always best to seek advice before doing so.
If you are interested in getting a Cash Equivalent Transfer Value, contact our team today. Our Pension Investigators and Pension Detectives can even help you get back in touch with any final salary or money purchase pensions you may have lost track of, and request a CETV on your behalf.