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    • cambb
    • By cambb 6th Jul 17, 12:27 PM
    • 169Posts
    • 4Thanks
    cambb
    Massive changes in CETV value
    • #1
    • 6th Jul 17, 12:27 PM
    Massive changes in CETV value 6th Jul 17 at 12:27 PM
    Hi,
    I'm in the process of transfer out of my DB scheme ( hopefully the money will be transferred tomorrow to the Pru) but i still have access for the time being to the pension portal and the DB valuation.

    On the 30th June my Valuation was £549k however I checked today before i lose access and the valuation has dropped to £456k. I've transferred out at £522k.

    Any ideas how it could fluctuate so much? It does say its only an estimate but I've spoken to a couple of colleagues and their pensions have also dropped.
Page 1
    • atilla
    • By atilla 6th Jul 17, 12:47 PM
    • 823 Posts
    • 700 Thanks
    atilla
    • #2
    • 6th Jul 17, 12:47 PM
    • #2
    • 6th Jul 17, 12:47 PM
    I've just transferred over to Pru, and had Willis Towers Watson try pulling a fast one by saying the rates had dropped and thus transferred over less than agreed.
    Note:
    Luckily the Pru were onto this little scam and got it resolved.
    My FA at our last meet said he'd ad a few CETV quotes drop recently.
    • GunJack
    • By GunJack 6th Jul 17, 1:05 PM
    • 9,796 Posts
    • 7,297 Thanks
    GunJack
    • #3
    • 6th Jul 17, 1:05 PM
    • #3
    • 6th Jul 17, 1:05 PM
    for one thing, the FTSE has dropped 200-odd points in a month, would have an effect on any uk-based equity holdings the pension trustees hold....
    ......Gettin' There, Wherever There is......
    • bostonerimus
    • By bostonerimus 6th Jul 17, 1:25 PM
    • 985 Posts
    • 504 Thanks
    bostonerimus
    • #4
    • 6th Jul 17, 1:25 PM
    • #4
    • 6th Jul 17, 1:25 PM
    Does the UK have a statutory or regulated discount rate used to calculate CETV. In the US the tax authority (IRS) regularly publishes a set of time segmented interest rates that pension administrators use to calculate CETV on defined benefit pensions, prior to that it was the 30 year treasury rate.
    Misanthrope in search of similar for mutual loathing
    • ianthy
    • By ianthy 6th Jul 17, 2:27 PM
    • 86 Posts
    • 44 Thanks
    ianthy
    • #5
    • 6th Jul 17, 2:27 PM
    • #5
    • 6th Jul 17, 2:27 PM
    Hi

    Finally, my DB transfer journey will come to an end next week with 938k transfer. Until the transfer happens, I can continue to see the CETV details live on MercerOneView. The rate in late 2015 was 752k then after a number of increases moved up to in March 2017 938k. The figure has moved up and down slightly over the last few months and currently sits at 930k.

    I think the only way is now down, due to market conditions and also pending increased regulations/rules from the Pension regulator/FSA. I have always been mystified why some CETV schemes are falling but other were still increasing... I suspect this will be listed as another mis-selling scandal in years to come.
    Last edited by ianthy; 06-07-2017 at 2:31 PM.
    • ianthy
    • By ianthy 6th Jul 17, 2:29 PM
    • 86 Posts
    • 44 Thanks
    ianthy
    • #6
    • 6th Jul 17, 2:29 PM
    • #6
    • 6th Jul 17, 2:29 PM
    Does the UK have a statutory or regulated discount rate used to calculate CETV. In the US the tax authority (IRS) regularly publishes a set of time segmented interest rates that pension administrators use to calculate CETV on defined benefit pensions, prior to that it was the 30 year treasury rate.
    Originally posted by bostonerimus

    Good question. I never really got a straight answer from Mercer or the Pensions director of the company holding my DB pension. At times I felt like I was being fobbed off. My only comparison is what other say they were being offered and checking with a few online calculators ref the min/max CETV.
    • sandsy
    • By sandsy 6th Jul 17, 3:47 PM
    • 1,197 Posts
    • 694 Thanks
    sandsy
    • #7
    • 6th Jul 17, 3:47 PM
    • #7
    • 6th Jul 17, 3:47 PM
    Does the UK have a statutory or regulated discount rate used to calculate CETV. In the US the tax authority (IRS) regularly publishes a set of time segmented interest rates that pension administrators use to calculate CETV on defined benefit pensions, prior to that it was the 30 year treasury rate.
    Originally posted by bostonerimus
    No.

    The initial transfer value should be a best estimate of the cost of just providing the benefits. Trustees are responsible for the values offered but are expected to take actuarial advice.

    The discount rate will typically be driven by the investment strategy of the scheme so will be higher for a scheme with higher levels of equity investment, compared to say a scheme which is heavily invested in government bonds.

    Some guidance to trustees here:
    http://www.thepensionsregulator.gov.uk/guidance/guidance-transfer-values.aspx
    • JoeCrystal
    • By JoeCrystal 6th Jul 17, 3:51 PM
    • 1,277 Posts
    • 730 Thanks
    JoeCrystal
    • #8
    • 6th Jul 17, 3:51 PM
    • #8
    • 6th Jul 17, 3:51 PM
    I think the only way is now down, due to market conditions and also pending increased regulations/rules from the Pension regulator/FSA. I have always been mystified why some CETV schemes are falling but other were still increasing... I suspect this will be listed as another mis-selling scandal in years to come.
    Originally posted by ianthy
    Not really on the mis selling scandal, that group just wants to have their cake and eat it. Anyone who transfers out of a DB pension scheme to get a lump sum transfer should not have a single drop of sympathy for them should they get into troubles like running out of money or not getting what they expect, So it is not really mis-selling scandal here.

    You only need one major market crisis and then they will come out of the woodwork on this forum and complain.
    • ianthy
    • By ianthy 6th Jul 17, 4:25 PM
    • 86 Posts
    • 44 Thanks
    ianthy
    • #9
    • 6th Jul 17, 4:25 PM
    • #9
    • 6th Jul 17, 4:25 PM
    Not really on the mis selling scandal, that group just wants to have their cake and eat it. Anyone who transfers out of a DB pension scheme to get a lump sum transfer should not have a single drop of sympathy for them should they get into troubles like running out of money or not getting what they expect, So it is not really mis-selling scandal here.

    You only need one major market crisis and then they will come out of the woodwork on this forum and complain.
    Originally posted by JoeCrystal


    I think there is a real lack of transparency on how the figures are calculated. Imagine this were a redundancy situation - the employee would be given the complete calculations. As I mentioned in my own case, Mercers and the Head of Pensions for my ex-employer could not explain to me how my figures were calculated only that the level of CETV was one of the highest in the industry. Having read the offers that some forum members are being offered - how can there be so much variation in CETV values? As you mention in years to come when some folks run out of money they will grasp at anything to raise a claim. To a certain extent the industry is not helping itself by not being transparent or consistent in how it calculates the CETV.
    • cambb
    • By cambb 6th Jul 17, 5:13 PM
    • 169 Posts
    • 4 Thanks
    cambb
    Looking at the two values the difference is one includes "Post April 1988 GMP" which is £950 and the other one hasn't got it on for some reason?
    • Thrugelmir
    • By Thrugelmir 6th Jul 17, 5:23 PM
    • 55,559 Posts
    • 48,924 Thanks
    Thrugelmir
    I think there is a real lack of transparency on how the figures are calculated. Imagine this were a redundancy situation - the employee would be given the complete calculations. As I mentioned in my own case, Mercers and the Head of Pensions for my ex-employer could not explain to me how my figures were calculated only that the level of CETV was one of the highest in the industry. Having read the offers that some forum members are being offered - how can there be so much variation in CETV values? As you mention in years to come when some folks run out of money they will grasp at anything to raise a claim. To a certain extent the industry is not helping itself by not being transparent or consistent in how it calculates the CETV.
    Originally posted by ianthy
    Schemes all have different levels of funding. Some in surplus , others in deficit. Also differing levels of liability in terms of deferred membership. Very to simplistic to assume that there should a standard calculation.
    "Wide diversification is only required when investors do not understand what they are doing." - Warren Buffett
    • ianthy
    • By ianthy 6th Jul 17, 11:26 PM
    • 86 Posts
    • 44 Thanks
    ianthy
    Schemes all have different levels of funding. Some in surplus , others in deficit. Also differing levels of liability in terms of deferred membership. Very to simplistic to assume that there should a standard calculation.
    Originally posted by Thrugelmir

    Thanks all for the info, which I understand after spending 30+ years in industry supporting employee pay and benefits including co pensions and expatriate benefits. Normally, you can check a pension quotation via the scheme booklet/rules but for CETV, the calculation used does not appear to be widely available. For me, the real issue is one of transparency about how the CETV quotations are calculated, if the quotation included an approved standard calculation, which may include some or all the elements that you mention, then this would address any concerns regarding how can I be confident that my CETV quotation is correct? I read on this forum where an IFA was able to prove to pension actuaries that a quotation for his client was circa 5% short. I suspect the majority of IFA’s will not check the calculations but the task of understanding and having confidence in the CETV would be made easier if some form of explanation /calculation were included.

    In my own case, I secured 4 quotations over the space of 20 months. For quotations 1-3 the online CETV figure V the actual CETV quotation received varied by 2%, when I questioned this I was informed it was policy to reduce down quotations by 2% as this was the margin of error on the online quotation. However my last/final quotation was reduced by less than £300 on £937k CETV, so definitely not 2%. Of course, I am not going to complain but there is either an inconsistency or the rules changed – with greater transparency I would be better able to understand.

    On this forum, I don’t think we can resolve the issue of transparency. The fact that forum members are prepared to share their quotations or ask questions about their CETV is great as this tells me that the method of calculation seems to vary from pension scheme to pension scheme.
    Last edited by ianthy; 06-07-2017 at 11:29 PM.
    • sandsy
    • By sandsy 7th Jul 17, 8:24 AM
    • 1,197 Posts
    • 694 Thanks
    sandsy
    this tells me that the method of calculation seems to vary from pension scheme to pension scheme.
    Originally posted by ianthy
    You simply can't compare calculations from different schemes as they all offer different benefits, all have different assets available to them to pay those benefits and all have different levels of solvency.

    The general premise of the calculation is always the same:
    - look at the amount of money the scheme would need to put aside now to pay the benefits for the individual requesting the transfer value, based on their individual entitlement and the way the schemes assets are invested
    - adjust as needed for solvency considerations and to ensure that other members' benefits aren't adversely affected

    But inevitably, schemes use simplifying assumptions as they don't know the full extent of every member's personal circumstances. For example, they will make assumptions about the number of members who are married and the extent to which spousal benefits might be payable. That assumption might be different for different schemes operating in different sectors of the market. Similarly, they'll use different mortality assumptions for different schemes, depending on the profile of the members.
    • Finst
    • By Finst 7th Jul 17, 9:43 AM
    • 142 Posts
    • 126 Thanks
    Finst
    Ianthy - a couple of points for you (and others).


    The calculations for a CETV are an order of magnitude more complex than redundancy or pension calculations. Trust me, even if you were given the full calculations you would find it very difficult to spot an error in them. The people that set the calculation methodology have been through a gruelling set of exams on complex statistical maths and it takes an average of 8 years (after graduating from university) to qualify. From experience, I can guarantee that the vast majority of IFAs wouldn't be able to understand them either.


    What would be useful to IFAs (and possibly members) is to understand the financial and demographic assumptions used to calculate the CETVs. There's no statutory requirement to disclose these, but most pension schemes will on request. I'll agree with you that I think this should be available.


    Your hopes for a standard calculation I'm afraid just won't work, because the benefits provided by every scheme are slightly different. Similarly, the assumptions used by law have to reflect the expected investment returns, retirement patterns and life expectancy of that scheme. As an extreme example, the expected cost of providing a pension in a scheme for an asbestos disposal company where the scheme is invested in equities is vastly different to a scheme for personal trainers invested in bonds.


    What you do have is a standard legal requirement (at least equal to the expected cost), and a standard set of standards / professional guidance on the detailed aspects of the calculations. You are then relying on the fact that the Trustees have appointed a qualified and heavily regulated professional to calculate the CETVs accurately, and these calculation routines have gone through a high level of checking. Doesn't mean mistakes don't happen, but they are rare.


    Its also worth noting there is a legal minimum that has to be provided, but there is no legal maximum. There are several reasons why a scheme would want to pay more than the legally required amount, and while that can lead to inconsistencies between schemes, there's no legal or moral problem with that.
    • Malthusian
    • By Malthusian 7th Jul 17, 10:05 AM
    • 3,073 Posts
    • 4,472 Thanks
    Malthusian
    You simply can't compare calculations from different schemes as they all offer different benefits, all have different assets available to them to pay those benefits and all have different levels of solvency.
    Originally posted by sandsy
    And, the one that everyone forgets, different age demographic profiles among their members.

    You can't tell from a statutory funding statement how many of the scheme's members are 50, how many are 80, and how many are 50 but unlikely to see their 70s due to the years they spent inhaling chemical fumes for the company or travelling round the country living on Rustlers.
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