Challenging a CETV...?

SilverWinterSky

Hello All,

I am new to the site and have stumbled across this wealth of experience and knowledge. I'm hoping for some help with a specific question.

Q. Has anyone here ever challenged (successfully or otherwise) a CETV provided on behalf of a DB scheme? If so, what was the process for this?

The short-story background is that the relevant CETV appears very low in comparison to others the adviser has seen. The most likely reason for this is that the scheme has (shall we say) optimistic assumptions for investment returns in the period prior to the normal retirement date. With more realistic assumptions the CETV might be substantially higher.

I have been unable to locate an adviser with experience of this or similar situations. They are all very conversant with assessing options given a known CETV, but not with questioning the basis of preparation of CETV itself. I suspect I'll need to appoint an actuary to do some specific work here, but thought I'd ask the general question here in the hope that someone has relevant experience that they are comfortable sharing.

Thank you in advance!

PensionTech

What do you call "optimistic assumptions"? And how are the scheme's assets invested? Is there a market adjustment factor being applied? Is the scheme underfunded?

To provide more information:

I have a fair bit of insight into actuarial practices and although it would be useful to know what figures you're looking at and why you think they're unreasonable, I think you will find it difficult to appoint an actuary willing to go out on a limb and support a challenge of another actuary's work. This is not because the actuarial profession is some old boys' club but because actuarial science is something of an art form (read: grey area) and your evidence would have to be pretty strong in order to assert that another actuary's assumptions are not just different to what you might have come up with yourself, but downright unreasonable/irresponsible.

On top of that: it might depend on the firm but in my experience, actuaries are reluctant to take on work from the general public. The charge-out rate for an actuary is very high and the admin associated with taking on a new client for one relatively small item of work would likely make it unprofitable and unattractive as an item of business.

If you come back and tell me that the discount rate is 20%, there might be more to discuss!

xylophone

I was looking through some Royal London links only today and came across this on pension division on divorce.

"There are two major possibilities that could prevent your client from getting fair value:

The CEV could be based on assumptions you believe to be inappropriate

The CEV might not reflect facts which you consider to be relevant.



In either case it is possible to question the CEV. The crucial thing is knowing when it is both advantageous and cost effective to do so.

Solicitors are required to have a mind for the "proportionality of costs" - that the amount of work done is in line with the benefit that would result to the client.

With regard to the pension assets financial advisers are in the ideal position to assess this. Knowing what to ask, and when to ask it, can be vital to ensuring the client gets the settlement that they have been led to expect.

Questioning the CEV doesn't mean that the information provided by the pension arrangement will be revised (unless there has been a mistake). However any underlying assumptions and its calculation can be clarified. This may show the CEV to be inappropriate for particular reasons and an alternative value can be used in negotiations."

Employing a specialist actuary would certainly not be cheap.

I do recall a discussion on a forum a few years ago where a poster was doing so because he wanted an assessment of the loss resulting from transferring out of his DB Scheme.

PensionTech

Ah. OP, I've assumed that you are talking about a CETV provided for the purpose of simply transferring to another scheme, rather than for divorce; please would you clarify? This is an important point, as Royal London's information might be relevant for negotiating a settlement between two parties on divorce based on more than just the CETV, but almost certainly wouldn't be relevant for the CETV provided in respect of a standard transfer (unless, as mentioned, a clear mistake was made in the calculation or the assumptions).

SilverWinterSky

Xylophone. Thank you for your response - I'll search for the post you reference.

PensionTech. Thank you also for taking time to respond, but my question was quite specific so no additional information is needed.

If anyone reading here has ever challenged a CETV I'd be very interested to hear how the process was conducted.

sandsy

The trustees actually hold responsibility for the CETV (although they will take advice from an actuary) so you should approach the trustees of the scheme in the first instance.

You might want to ask them:
- the actuarial basis for the CETV, particularly the investment return assumptions both in deferment and at the point of retirement, and the inflation rate
- the date the assumptions were last fully reviewed for CETV purposes
- the extent to which the basis is dynamic to take account of changes in the economic environment in between major reviews