Cetv and age query

Nuttyboy

Im currently in the process of transfering my defered db scheme into a sipp and im having doubts about doing it at this moment in time,basically the company i work for like many have defered the db scheme in favour of a dc scheme.
Many of us have obtained transfer values and obviously comparing them
My concern is that my value is substantially lower than my co worker who has been on a similar salary and length of service.
Ive been told that there are many factors in working out a cetv and age is one of them
Im 50 and my collegue is 55.
I believe..correct me if im wrong ,there is a reduction factor..a percentage in calculating a cetv
So the further away from retiring the bigger the reduction factor.
Would i be able to find out what this factor is?
Im just wondering ,say if this factor was say 6%pa id be better off doing the transfer at a later stage.
Many thanks

Paul_Herring

Im just wondering ,say if this factor was say 6%pa id be better off doing the transfer at a later stage.

I'm more concerned that there's a possibility that you may be better off not transferring at all.

Why is the transfer happening in the first place?

Nuttyboy

Yes thats a good observation
Firstly i have a 4% penalty p.a. from my retirement age..so at 55 thats 40%...55 is the age i wish not to work..my db scheme is currently giving a pension figure of 15.5 k at 65..as i said its defered.
With the penalties it isnt doable.
My cetv is 361k...my collegues is 417k..
I cant get my head around the big difference with similar salaries and service..im wondering what my rights are with regards the information how the calculation is done,as ive said our ages are 5 years apart..if its that which makes up the bulk of the difference is it better to do a transfer at a later point..i realise there are many other factors involved but my concern is my age affecting the value at this moment in time.

Marcon

Nuttyboy wrote: »

Yes thats a good observation
Firstly i have a 4% penalty p.a. from my retirement age..so at 55 thats 40%...55 is the age i wish not to work..my db scheme is currently giving a pension figure of 15.5 k at 65..as i said its defered.
With the penalties it isnt doable.
My cetv is 361k...my collegues is 417k..
I cant get my head around the big difference with similar salaries and service..im wondering what my rights are with regards the information how the calculation is done,as ive said our ages are 5 years apart..if its that which makes up the bulk of the difference is it better to do a transfer at a later point..i realise there are many other factors involved but my concern is my age affecting the value at this moment in time.

There aren't any penalties; you are confusing your transfer value with the 'actuarial reduction factor' applied when someone starts to draw their pension early.

Younger members will have lower transfer values than older members who have identical service/salary histories (extremely rare, let me add!).

No guarantee that your transfer value will be higher in future. The trustees can change the basis of calculation at any time, based on many factors such as the scheme's investment strategy, market conditions etc.

Nuttyboy

Sorry i didnt make myself clear...i wasnt refering the 4% to the transfer value..i was refering to my pension figure at 65..of course Marcon you are correct.
And yes i realise the many factors influence the cetv...just to make my question clear..if i hyperthetically removed these factors..exept for my age...in theory my cetv would increase year on year..correct?..if so by how much?..would the actuary give me this percentage if i asked for it?

hugheskevi

.if i hyperthetically removed these factors..exept for my age...in theory my cetv would increase year on year..correct?..if so by how much?..would the actuary give me this percentage if i asked for it?

Probably, but it depends on what the discount rate used is, which in turn depends on factors such as the type of scheme investments.

Imagine your future pension as a string of cash amounts due in each year into the future, starting at your normal pension age and ending upon the death of you and your spouse. This string of amounts is calculated by actuaries, having made assumptions about factors such as salary growth, inflation, marriage rates at retirement, mortality, average age differences between spouses, marriage rates at death and so forth.

That string of future cashflows is then changed into a capital value by use of a discount rate. The discount rate is calculated conservatively, likely based on the expected return given the current allocation of scheme investments.

If the scheme is underfunded, an adjustment may be made to the capital value to account for the underfunding - ensuring those transferring out don't disadvantage those remaining by taking the full value of their benefits and thus increasing the average level of underfunding for those left.

Assuming the discount rate is positive in real terms, ie, that that the scheme expects to make a real return on its investments, the the capital required to meet future cashflows for two members identical in every way except age would be higher for older members as there is less time for returns to contribute to meeting the liability.

However, you can see from the above how many other things may change beyond the member ageing, and so would change future CETVs. The most sensitive change is likely to be in the discount rate, and if gilt/bond rates increase you would expect discount rates to increase and so CETVs to fall.

You should be able to find the assumed discount rate in the most recent scheme valuation.

sandsy

Yes, for the same benefits, an older colleague will get a bigger transfer value. The transfer value can be thought of as the amount needed to pay the scheme benefits in future. As your colleague is older, the trustees need to have a larger amount set aside for him than for you as there is less time to earn investment returns on his value than on yours. If they expect investment returns of 6% each year, then his pot could be a third higher than yours.

Marcon

Nuttyboy wrote: »

Sorry i didnt make myself clear...i wasnt refering the 4% to the transfer value..i was refering to my pension figure at 65..of course Marcon you are correct.
And yes i realise the many factors influence the cetv...just to make my question clear..if i hyperthetically removed these factors..exept for my age...in theory my cetv would increase year on year..correct?..if so by how much?..would the actuary give me this percentage if i asked for it?

In theory (but not necessarily in practice), a CETV would increase as a member gets closer to the scheme's normal retirement age. You can't simply remove all the relevant factors and ask the actuary for the % increase, because it's a completely impossible calculation; the factors would NOT be removed when working out the sums.

Albermarle

As already mentioned more important than comparing CETV's with colleagues , is that transferring a DB scheme to a SIPP is a VERY big decision that could affect you a lot in future .
Are you aware that you will have to go to an IFA who will analyse your situation and advise you whether it is a good idea to transfer ? Otherwise you will not be allowed to transfer. Finding an IFA willing to do the work is not easy and will cost at least £5K.
Even then some SIPP providers will not accept DB transfers at all, and some only if the IFA advice is positive ( which it usually isn;'t)
There are numerous threads on this forum regarding DB transfers so some searching could be a good thing to do.

AnotherJoe

Nuttyboy wrote: »

Yes thats a good observation
Firstly i have a 4% penalty p.a. from my retirement age..so at 55 thats 40%...55 is the age i wish not to work..my db scheme is currently giving a pension figure of 15.5 k at 65..as i said its defered.
With the penalties it isnt doable.

Do you have alternative investments / money you can use to tide you through a period until your DB scheme pension is a figure you are happy with?
Similarly, could you take part time work to make up the difference?

Nuttyboy

Ive seen an ifa and is currently doing the transfer..to true potential for a fee of 1%.
The full picture is this
50 year old male. No children and in full time employment with 28years service.
My db scheme was defered at the end of 2018 and we are in a dc scheme with standard life. The company is paying in a bonus of 6%on top of their 10% for 3 years aa compensation for loosing the scheme.. Im currently paying in 65%of my wages.. A tolal of £2750 every month.
My savings are 240k..cash isas. Premium bonds and easy access accounts paying roughly 1.5%
Ive an interest only mortgage of 50k..house worth 250k
I want to be in a position at 55 or earlier if i choose not to work i can.
The db transfer is important to consider as has been pointed out.. I want to do it but i dont have to do it right now.. If there are any advantages to postponing it can you point them out. Many thanks