CETV multiplier convention ?

TcpnT

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 ?

sandsy

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

That's pretty much what I have concluded but it seems to be the number everyone wants to compare.

mgdavid

TcpnT wrote: »

That's pretty much what I have concluded but it seems to be the number everyone wants to compare.

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.

fifeken

mgdavid wrote: »

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.

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

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

TcpnT wrote: »

Just noticed that I omitted the vital information that CETV offered this month is £430k. The figures make more sense now you know that.

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

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

TcpnT wrote: »

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 ?

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

davieg11 wrote: »

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.

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

sandsy wrote: »

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.

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.