CETV multiplier convention ?

davieg11 wrote: »

There is no logic in it. It is a rough estimate for deciding to take the CETV to an IFA. If the multiplier was say x15 in today's value, it would not even be worth considering the transfer. My 1st Db pension was x23.8 the value and got a critical yield of 4.8% to age 65 or 6.1% to age 60. My 2nd was x26.8 the value and got a critical yield of 6.2%. These yields are relatively high and may not be achievable, so if the multipliers were below x20, the yield would have been so much higher and I would have got a negative recommendation.

Complete and utter nonsense. Critical yields do not vary just because multipliers change. The variation in critical yields is due to the relative change between the CETV and the comparative cost of purchasing an annuity. And as the cost of purchasing an annuity also increases as CETVs increase, a multiplier is far too rough a tool to allow for any those relative differences at it only looks at the DB side of the equation and takes no account of the DC side.

davieg11 wrote: »

So my pension today is £738pa, pension at 65 is £1300pa. Capitalised value of benefits is £47,265. Critical yield is 4.8%. Transfer value was £17,635 (23.8 x 738). If I add 4.8% for 21 years when I retire it comes to £47,200. If my transfer value was say x15 (738x15 = £11070) then my critical yield would have been much higher and not achievable to get to £47,000. I have 2 full TVAS reports from 2 different IFA's for 2 different db schemes, so don't tell me about complete and utter nonsense. The simple multiplier gives a simple indication if it's worth your while seeing an IFA for a TVAS report before you waste your money paying for one.

Sigh.....

Try the following hypothetical exam question: after seeking information on an internet forum, John and Alison both approach a financial adviser for advice on a DB-DC transfer. Both have been quoted transfer values which are 30 times the current value of the annual pension. After a TVAS has been undertaken and an advice letter has been prepared, Alison is delighted to find out that the adviser recommended a transfer. The critical yield on her transfer was 4.8%. John's adviser did not recommend a transfer - the critical yield was 6.7%. List the reasons:
a) why the critical yields may have varied so much, and
b) other factors which may have influenced each adviser's recommendation.

sandsy wrote: »

List the reasons:
a) why the critical yields may have varied so much

The variation in critical yields is due to the relative change between the CETV and the comparative cost of purchasing an annuity

If CETV and the comparative cost of purchasing an annuity are the same, I don't know why?

I guess the CETVs are different?

And not sure what you mean comparative cost, compared to what? The db pension income?