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  • FIRST POST
    • TcpnT
    • By TcpnT 17th Mar 17, 7:52 PM
    • 20Posts
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    TcpnT
    CETV multiplier convention ?
    • #1
    • 17th Mar 17, 7:52 PM
    CETV multiplier convention ? 17th Mar 17 at 7:52 PM
    There is much discussion on the board comparing the merits of particular CETV's based on multipliers. Is seems to me though that posters are not always comparing like with like and that the calculation of the multiplier is not consistent.

    To use my figures as an example:

    Age 56 now. Pension value when deferred in 2001 was £8900. NRD in 2026 - 9 years time.

    Pension amount if I took it early starting now = ~£10,000.

    Projected pension value if taken at NRD = £19,000.

    So is the multiplier 48, 43 or 23 ? Is there a correct method to make this calculation or is the multiplier a poor comparison method unless it is used for a CETV received very close to NRD ?
Page 1
    • sandsy
    • By sandsy 17th Mar 17, 8:04 PM
    • 1,063 Posts
    • 605 Thanks
    sandsy
    • #2
    • 17th Mar 17, 8:04 PM
    • #2
    • 17th Mar 17, 8:04 PM
    It's a terrible comparison method unless you are comparing the DB income you could take now with the CETV on offer now. Even then, there will be variations depending on the relative mix of different GMP tranches and non-GMP portions and the indexation which applies to the different parts, and the level of spouse's benefits, not to mention retirement age itself! It's quite possible even at the point of retirement you could get multipliers varying from 30 to 50.

    Multiples are a simplification too far as far as I'm concerned.
    • TcpnT
    • By TcpnT 17th Mar 17, 8:16 PM
    • 20 Posts
    • 11 Thanks
    TcpnT
    • #3
    • 17th Mar 17, 8:16 PM
    • #3
    • 17th Mar 17, 8:16 PM
    That's pretty much what I have concluded but it seems to be the number everyone wants to compare.
    • mgdavid
    • By mgdavid 18th Mar 17, 1:45 AM
    • 5,102 Posts
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    mgdavid
    • #4
    • 18th Mar 17, 1:45 AM
    • #4
    • 18th Mar 17, 1:45 AM
    That's pretty much what I have concluded but it seems to be the number everyone wants to compare.
    Originally posted by TcpnT
    I think it's human nature. People who fancy getting their hands on the cash use it as a hook to hang their reasoning on, rather than follow straight logic.
    A salary slave no more.....
    • fifeken
    • By fifeken 18th Mar 17, 6:37 AM
    • 2,100 Posts
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    fifeken
    • #5
    • 18th Mar 17, 6:37 AM
    • #5
    • 18th Mar 17, 6:37 AM
    I think it's human nature. People who fancy getting their hands on the cash use it as a hook to hang their reasoning on, rather than follow straight logic.
    Originally posted by mgdavid
    And conversely, those who advocate FS pensions as always being the "right" option use it in the opposite way.

    Out of interest, how would you propose to work out the do or don't poser?
    • TcpnT
    • By TcpnT 18th Mar 17, 6:49 AM
    • 20 Posts
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    TcpnT
    • #6
    • 18th Mar 17, 6:49 AM
    • #6
    • 18th Mar 17, 6:49 AM
    Just noticed that I omitted the vital information that CETV offered this month is £430k. The figures make more sense now you know that.
    • davieg11
    • By davieg11 18th Mar 17, 12:29 PM
    • 184 Posts
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    davieg11
    • #7
    • 18th Mar 17, 12:29 PM
    • #7
    • 18th Mar 17, 12:29 PM
    Just noticed that I omitted the vital information that CETV offered this month is £430k. The figures make more sense now you know that.
    Originally posted by TcpnT
    To find out the correct multiplying number, you need to know what the value of the pension is today. If it was £8900 in 2001 it will be around £14,000 today (my estimate). It's not the £10,000 if you take it just now. You will have to contact trustees for value now. £430k / £14k would be x30.
    • TcpnT
    • By TcpnT 18th Mar 17, 8:05 PM
    • 20 Posts
    • 11 Thanks
    TcpnT
    • #8
    • 18th Mar 17, 8:05 PM
    • #8
    • 18th Mar 17, 8:05 PM
    That was one number I hadn't tried.
    By "Today's value" you mean the original deferred value indexed (as dictated by the particular scheme) to the present day - but not projected to a predicted value at NRD ?

    If so is this a generally accepted standard ?
    • davieg11
    • By davieg11 18th Mar 17, 10:14 PM
    • 184 Posts
    • 79 Thanks
    davieg11
    • #9
    • 18th Mar 17, 10:14 PM
    • #9
    • 18th Mar 17, 10:14 PM
    That was one number I hadn't tried.
    By "Today's value" you mean the original deferred value indexed (as dictated by the particular scheme) to the present day - but not projected to a predicted value at NRD ?

    If so is this a generally accepted standard ?
    Originally posted by TcpnT
    That's correct. £8900 indexed until today. Usually people go with between x20 and x30 times the value before going to see an IFA for a TVAS report which will give critical yield. If yours is around x30 it will probably get a positive outcome for transfer from an IFA, although you can still transfer with a negative outcome.
    • sandsy
    • By sandsy 18th Mar 17, 10:19 PM
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    • 605 Thanks
    sandsy
    That's correct. £8900 indexed until today. Usually people go with between x20 and x30 times the value before going to see an IFA for a TVAS report which will give critical yield. If yours is around x30 it will probably get a positive outcome for transfer from an IFA, although you can still transfer with a negative outcome.
    Originally posted by davieg11
    I don't see the logic in that as it takes no account of the actuarial reduction applied for taking it early, i.e. The fact you would only get £10k by taking it now.
    • davieg11
    • By davieg11 19th Mar 17, 8:20 AM
    • 184 Posts
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    davieg11
    I don't see the logic in that as it takes no account of the actuarial reduction applied for taking it early, i.e. The fact you would only get £10k by taking it now.
    Originally posted by sandsy
    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.
    • sandsy
    • By sandsy 19th Mar 17, 9:04 AM
    • 1,063 Posts
    • 605 Thanks
    sandsy
    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.
    Originally posted by davieg11
    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
    • By davieg11 19th Mar 17, 11:10 AM
    • 184 Posts
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    davieg11
    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.
    Originally posted by sandsy
    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.
    • sandsy
    • By sandsy 19th Mar 17, 1:07 PM
    • 1,063 Posts
    • 605 Thanks
    sandsy
    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.
    Originally posted by davieg11
    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.
    • davieg11
    • By davieg11 19th Mar 17, 2:01 PM
    • 184 Posts
    • 79 Thanks
    davieg11
    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.
    Originally posted by sandsy
    I would have to see the TVAS reports first to answer that!
    • hennerz
    • By hennerz 20th Mar 17, 12:07 AM
    • 159 Posts
    • 23 Thanks
    hennerz
    List the reasons:
    a) why the critical yields may have varied so much
    Originally posted by sandsy
    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?
    • ffacoffipawb
    • By ffacoffipawb 20th Mar 17, 5:44 AM
    • 2,328 Posts
    • 1,466 Thanks
    ffacoffipawb
    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.
    Originally posted by sandsy
    Are John and Alison the same age. Do they have the same retirement age?
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