Final salary CETV

Rrunner

Hello All,

I am new to the site and to the pensions maze and have stumbled across this wealth of experience and knowledge. I'm hoping for some opinions and help!

I have tracked down an old final salary pension that I was enrolled in from 1987-1996:
Private, 9 years in, final salary GBP33k, 1/60th factor.
Date of leaving the scheme (Oct '96) the pension was 3,891/yr
mid May 2012 it was at 5,910/yr
Not sure what the pension is today?
Theres a spousal/child survivor component and a lump sum payment if I pop off within 5 years of taking the pension.
NRA 65
Age now: 49

I requested a CETV this year and it has come back from Towers Watson at 113,734
Is this a decent CETV and worth taking now? Or should I wait and ask for another valuation at a future date closer to my NRA?
I've seen comments on this site about Towers Watson and under valuing CETVs. Do you think my CETV is a lowball?

My consideration is to move it to a QROPS account in Canada where I now reside as a citizen with little to no possibility of returning to the UK. My family is here, young and Canadian, with no one left in my family back in the UK.

The pension is currently underfunded and the company is in the midst of a 7 year boost funding of the pension to the tune of GBP20m/yr

Pros.
Control over this portion of my retirement fund, it will be a part of a retirement portfolio of about 5 strands that will see us into a comfortable retirement.
I have been here enough years that tax wise I can take control of the investment and choose my strategy to complement my other retirement funds.
Not subject to currency fluctuations which I have seen affect other expats drawing pensions.
No worries about validity of fund into the medium long term.
Cons.
Abandoning an index linked monthly DB pension, albeit small.
Currency fluctuations can erode return at times.
I am in Canada now but you never know what the future holds.

Comments, advice welcomed!

Thanks
Rr

232607

Rrunner wrote: »

Hello All,

I am new to the site and to the pensions maze and have stumbled across this wealth of experience and knowledge. I'm hoping for some opinions and help!

I have tracked down an old final salary pension that I was enrolled in from 1987-1996:
Private, 9 years in, final salary GBP33k, 1/60th factor.
Date of leaving the scheme (Oct '96) the pension was 3,891/yr
mid May 2012 it was at 5,910/yr
Not sure what the pension is today?
Theres a spousal/child survivor component and a lump sum payment if I pop off within 5 years of taking the pension.
NRA 65
Age now: 49
I requested a CETV this year and it has come back from Towers Watson at 113,734
Is this a decent CETV and worth taking now? Or should I wait and ask for another valuation at a future date closer to my NRA?
I've seen comments on this site about Towers Watson and under valuing CETVs. Do you think my CETV is a lowball?

My consideration is to move it to a QROPS account in Canada where I now reside as a citizen with little to no possibility of returning to the UK. My family is here, young and Canadian, with no one left in my family back in the UK.

The pension is currently underfunded and the company is in the midst of a 7 year boost funding of the pension to the tune of GBP20m/yr

Pros.
Control over this portion of my retirement fund, it will be a part of a retirement portfolio of about 5 strands that will see us into a comfortable retirement.
I have been here enough years that tax wise I can take control of the investment and choose my strategy to complement my other retirement funds.
Not subject to currency fluctuations which I have seen affect other expats drawing pensions.
No worries about validity of fund into the medium long term.
Cons.
Abandoning an index linked monthly DB pension, albeit small.
Currency fluctuations can erode return at times.
I am in Canada now but you never know what the future holds.

Comments, advice welcomed!

Thanks
Rr

No sure I know if the CETV is fair or not so I'll let others more knowedgeble comment.
Two things I do know having recently done a DB transfer that I'll share with you:-

I had a current pension benefit of £10,998 P/A and Towers Watson calculated a transfer value of £283.4K.

Bear in mind the biggest factor in CETV's is the gilt yield price at the time the calculation is made. I transfered mine out based on the Jan 2015 figure which was at an historical low. Any movement upwards to the gilt yield price results in lower CETV's. Effectively just because you've been given a value don't assume this will be available in the future.

Regards

Rrunner

Thanks for that perspective.
I've asked Towers Watson for some more details about their calculation and the percentages used to get to the value of the pension today.
May set some bells ringing......or reassure me. Not sure....

232607

I asked my company to outline how the calc was made & only received a summery of the facts used & how they had added certain figure up.

I found TW couldn't add 2 figures up meaning they'd paid me £1.5K too much. As the figures were higher than I expected I decided to accept in case they noticed the error by virtue of me asking questions.

Rrunner

My former company has been bought out since I left so any approach to the current company bounces my questions to TW.
I've searched and can't find a way to assess if this CETV is looking good or not. I think its low.j

macca1974

I used to be work for a firm a few years back who were involved in giving advice on pension transfers and we used to do what was called a Pension Transfer Value Analysis where you effectively plugged in the numbers from your scheme (preserved pension/escalation levels etc) and it came up with a critical yield, which was what your new defined contribution scheme would need to achieve each year after charges in order to match benefits scheme benefits.

At the time (and this was a few years ago!), the guidance was that if it was below 8% per annum needed then (assuming that there weren't any other special issues that made a transfer a good idea such as ill health etc) it might be worth considering a transfer. Anything above suggested that you would be better off staying where you are. This is a massive simplification and I'm sure that the guidance has changed since then, so nobody shout at me please!

It was also a good way to see how generous the ceding scheme was being (some schemes were offering CETV's where there was a 12% critical yield which was really poor and I do recall some where it was 4% where the trustees clearly wanted to get rid of future liabilities and offered generous terms).

The new rules coming next month would mean presumably that you will need to take regulated advice from a UK adviser before you can transfer anyway and I would have though that a TVAS would be part of that and you can see from there how generous the company is being.

Rrunner

Thanks for the critical yield concept. I'll do some looking around to see if I can find a calculator.
I don't think I'll fall into the need for a FA sign off as transfer to a QROPS in Canada is by definition approved by HMRC. The fund will be locked in to a retirement plan that the releasing scheme pays directly into.
The changes coming in April are however what has brought all of this to top of mind though.

kidmugsy

£113,734/(£5,190 x (say) 1.0750) = 20.4. That doesn't look too good to me, but I'm no expert; they are probably assuming that there would be plenty of growth of capital over the 16 years from age 49 to age 65.


My instinct is that when you are dealing with £100k you would be wise to get advice from a suitably qualified IFA. You'd probably want one to supervise your QROPS transfer anyway.

UPDATE: arithmetic above corrected; discussion changed.

macca1974

Hi Rrunner, the rule that I was referring to was that as of April 2015, all final salary pension transfers above £30K need to be "signed off" by a UK regulated IFA before the transfer takes place. I might have mis-understood these, but I would assume that this would refer to a QROPS as well as transferring it within the UK.

sandsy

£5910 revalued for 19 years (since 2012) at 2.5% would be £9448.


A couple of pension calculators suggest the cost of buying an annuity of £9448, inflation linked with 50% spouse's benefit, would be about 30 times that amount, ie. £283,440.


But there's 16 years to build up to that from the CETV of £113,734 which would need a return of 5.9% after charges.

Rrunner

I'll check the sign off rules, thanks for the tip macca.
The paperwork that TW sent over do not indicate this and they do seem to have been fairly thorough in the reams of forms I received!

kidm and sands, those calculations are very helpful. They support my instinct that this was not an overly generous cetv.

Can I get the fund to generate 6% after fees once I get it here? My plan was to put it into a low MER index fund portfolio modelled on the Canadian Couch Potato.
The rules of QROPS here would mean the fund would be ring fenced and I would not be able to add to it so it would need to be rebalanced from within.

Need to think on!