CETV Multiples between members of the same scheme

RichardEllis

My wife and I both worked for the same company and have DB pensions with them. She is 59 and I am 66. Her pension was payable at age 60, mine at 63 but I deferred it. The scheme has annual guarantees once in payment of up to 3% and a 60% spouse pension.

At the end of last year we got a transfer statement for her. It showed an annual pension of £1600 and a TV of £76,000 (a multiple of almost 50). I recently got mine and I have a pension of £6300 and a TV of £123,000 (a multiple of under 20). I have asked the scheme if mine is correct and been told that it is. I have asked if I can see the two sets of calculations and am awaiting these.

I know that we are different ages but I am struggling to see how there can be such a huge differential in the multiples. I have two questions:

1. Can anyone tell me how this differential offers me 'fair value' in the eyes of the Trustees ?

2. Is there any independent body that can adjudicate on this sort of issue?

Many thanks

Asghar

I'm no expert on transfer values but the difference has nothing to do with being members of the same scheme, not sure if age makes a difference.

It is all to do with rising interest rates and timing.
Last year seems to be the best year for receiving the highest transfer values, (with multiples of forty being the norm) at least up until mid September when the Bank of England hinted that they were going to raise the rate of interest and then when they actually did raise them in November. There are signs of more rate rise this year.

When the rate of interest rises, or are assumed to rise, then gilt yields rise and so do annuity rates which at the end of the day costs the DB pension scheme less money to actually pay your annual pension.

Purely as a simple example if the annuity rate was 6.3% then the DB scheme would need a lump sum of £100,000 to pay your pension of £6300 per year, if the annuity rate rose to 10% then they would only need a lump of £63,000.

Basically, because interest rates, gilt yields and annuity rates are assumed to rise from now on, the DB scheme are going to offer you a smaller transfer value because it will cost them less to pay your actual annual pension of £6300.

Did your wife actually transfer her pension at the end of last year, if not then I'd expect her transfer value today, to be lower as well.

I'm sure someone more knowledgeable wll be along soon.

Dox

Could be the trustees have changed the basis of calculation, which they are entirely at liberty to do. If they've changed their investment strategy that could make a substantial difference. Your age difference/different Normal Retirement Dates will have a major impact.

You also need to keep in mind that yours is not a statutory transfer - you are already past your scheme retirement date. If your wife had not reached her 59th birthday when she requested her TV last year, that would have been a statutory transfer (because she had at least one year to go before reaching her scheme retirement age of 60). Again, trustees can use different bases for statutory and non-statutory transfers.

They are not required to show you the calculations and there is no 'independent body' to 'adjudicate', as you put it - if you don't like the transfer value you don't have to accept (i.e. move) it.

Having said all that, if you believe they have made an error, it is always open to you as a member of the scheme to complain - first informally, and then using the scheme's Internal Dispute Resolution Procedure. Bear in mind that the trustees cannot comment on another member's benefits, even if you are married to each other.

Brynsam

Asghar wrote: »

I'm no expert on transfer values but the difference has nothing to do with being members of the same scheme, not sure if age makes a difference.

Age makes a big difference - both the different chronological ages and the different scheme retirement ages. Someone retiring at 60 has a pension which will, on average, be payable for more years than someone retiring at 63 (and in this case beyond), so a bigger TV would be needed to meet that cost.

The investment assumptions in relation to someone who has already reached the scheme's normal retirement date (NRD) are likely to be significantly different from those which apply to someone who has yet to reach NRD, which would again have an impact.

Less likely (but possible) is that the scheme has become seriously underfunded and the trustees are now only offering 'reduced' transfer values - if so, the paperwork should state this clearly.

The fact you have different NRDs suggests you belonged to/left the scheme at quite different times. It would be helpful to know your respective joining/leaving dates.

sandsy

It!!!8217;s largely age and gender related. You are 7 years older and, on average, men live 4 years less than women. So, in total 11 years less payments of your pension than your wife!!!8217;s.

Plus her quote probably assumes you are only 3 years older than her for spousal benefits, pushing her CETV higher. Whereas your quote understates the spousal benefit payable to your wife on her death, as it probably assumes she!!!8217;s only 3 years younger than you.

CETVs are based on averages and where your actual circumstances differ from the assumptions, there can be more or less value in the CETV.

RichardEllis

Thanks all for the input.

I will let you know how it progresses