Understanding a CETV

PhilNHove

Hullo everyone, New to this forum and apologies if this question has been asked lots of times before...

I've just received a CETV for a DB pension plan and wanted some help analysing it.

I worked for the company in question from 1988 to 2000. I am now 55 and will get an estimated annual pension at NRA (62, in 2024) of £19.3k. If I wanted to take the pension now (or from 56 rather) they are offering £10,600.

The CETV on offer now is £378K, which sounds fine at a multiple of 35 against the current pension on offer but a lot less generous against the £19k I would get from 62. Presumably, even if I did not touch the money, I should be able to grow that pot by around 50 per cent over the next six or seven years?

I'm mortgage free and have some other pensions so no immediate need to touch it. I'm only really exploring my options. My question is what multiple should I be looking at when considering the offer: the 35X or the 20X?
Many thanks, Phil

HappyHarry

You shouldn’t be looking at either of the multiples. They are an easy ‘soundbite’, but in reality, it’s not part of the consideration you should be making.

You should be considering whether the CETV is enough for you to manage on, for the rest of your life, given a range of investment and inflation outcomes.

You should be considering the death benefit of the DB scheme compared to the CETV.

You should be considering whether you want to manage an investment for the next 40 years, or whether you need to pay someone to manage it for you.

You should consider what happens if things go horribly wrong.

You should consider the strength and funding status of the DB scheme, and whether you believe it is strong enough to continue paying out as expected in 40 years time.

You should consider the impact that the lifetime allowance may have on your future income.

Once you have considered all these points, then think about the multiple, and you will realise that it doesn’t really matter

mgdavid

PhilNHove wrote: »

..... Presumably, even if I did not touch the money, I should be able to grow that pot by around 50 per cent over the next six or seven years?........

I'll pick up on 'presumably' and 'should'.
If somebody cold-called with that sort of offer I'd say it was a scam.

You don't need the money now.
You have £19.2k from NRA62, cast-iron and indexed, for life. Looks like a no-brainer to me.

PhilNHove

Wow - two very powerful answers. Suppose I'll have to guess the multiple!

pip895

I'm no expert but my understanding is that the multiple is taken on the current value rather than the future one so 35 rather than 20.

My multiple is x40 and I have decided to go ahead with a transfer but I wouldn't have if the pension was fully index linked rather than capped.

crv1963

They are more or less the same when you divide the 378 by the 20 you get roughly 19k or the 35 roughly 10k.


I'd ask why transfer now, as in give up the DB benefits? Will you still work and pay tax on the 10kpa? Will it push you into a higher tax bracket? Are you wanting to do it to pass it on to heirs?


Lots of people who post here seem to aim for around 24k pa pension for couples. So 19k DB + 8k SP= 27k pa (pension plus your other pensions whenever they are due to pay out) the 27k would underpin what would seem a reasonable retirement income so why transfer and create hassle with managing investments/ drawdown etc for future self?


Of course if you die before age 82 years you've drawn less than 378k if it stayed at a level rate, but is there spousal income as part of the deal? Is it index linked? If so you'll take 378 faster.

jamesbond_1

Hi,
new to this forum,quiick question,ive just had a cetv value for an old final salary pension i had from 1988 to 1999,the total transfer is 141k or £9250 per year,does look right as i think the cetv is a bit low ?

many thanks

Silvertabby

Not if it's the LGPS. Their transfer factors are set by GAD, and are not linked to government gilts.

happyandcontented

What is the opinion on an FS salary scheme where the spousal pension disappears if the pension is not in payment at the time of death?

This the position we are in and so have requested a new CETV to see whether it has gone up or down since the last time we considered the issue. We have put life cover in place now, (OH is now a Contractor) but we are still struggling with the idea that all that pension would just go if it was not in payment.

sandsy

happyandcontented wrote: »

What is the opinion on an FS salary scheme where the spousal pension disappears if the pension is not in payment at the time of death?

This the position we are in and so have requested a new CETV to see whether it has gone up or down since the last time we considered the issue. We have put life cover in place now, (OH is now a Contractor) but we are still struggling with the idea that all that pension would just go if it was not in payment.

Nothing has disappeared. If there is no spousal pension on death before the pension commences, then that's just the way the pension scheme was set up and the amounts paid in by the employer reflect the expected cost of the actual benefits that will be payable.

FS salary schemes vary enormously in what they offer. It's good that you've found out and been able to make alternative life assurance arrangements. However, if that's your main reason for considering a transfer - ie. the risk of dying before the pension comes into payment - it's unlikely to be an overriding factor in any transfer advice you receive, unless you have a life limiting illness.

Brynsam

happyandcontented wrote: »

What is the opinion on an FS salary scheme where the spousal pension disappears if the pension is not in payment at the time of death? Those are the rules of the particular scheme - but are you quite sure that's the case?

This the position we are in and so have requested a new CETV to see whether it has gone up or down It'll have done one or the other! But bear in mind market factors will have changed too....since the last time we considered the issue. We have put life cover in place now, (OH is now a Contractor) but we are still struggling with the idea that all that pension would just go if it was not in payment.

Don't be afraid to go back to the people running the scheme and ask them to confirm again if you aren't absolutely certain