Sudden increase in CETV of Thames Water Pension

coop74

Hi,

The CETV of my old Thames Water pension increased by 54% between the 2017 and 2018 annual statements. Does anybody know the reason for this sudden increase? This is an old deferred pension which I haven't paid into for many years. I haven't had the 2019 statement yet, so I don't know if it has increased again this year.

I am wondering if the CETV is likely to continue rising strongly, or should I just transfer this unexpected windfall to my current private stakeholder pension without delay?

Many thanks.

drumtochty

You have given no detail to allow others to comment on.

Thrugelmir

Only a windfall if you can invest the money successfully.

Ask yourself why TW is enticing you to leave the scheme. There's something in it for them.

Dox

Sounds like a combination of the trustees reviewing the transfer value basis and a change in investment strategy. Other possibility is that the CETV has been enhanced (does that word appear anywhere on the statement?) to encourage transfers out prior to the proposed scheme closure next year.

coop74

Dox wrote: »

Sounds like a combination of the trustees reviewing the transfer value basis and a change in investment strategy. Other possibility is that the CETV has been enhanced (does that word appear anywhere on the statement?) to encourage transfers out prior to the proposed scheme closure next year.

No it doesn't have any wording such as 'enhanced', and there is no explanation as to why it has increased so dramatically. I didn't know about the scheme closing next year. I'm just trying to decide whether to transfer it now or leave it and see if the CETV increases further. Could the CETV suddenly drop back down again? My knowledge of pensions is virtually zero unfortunately.

232607

CETV valuations can fluctuate widely.
Don’t assume that what is on the table now will still be available at the next valuation.
Current market conditions are giving CETV’s that are very high.
With the in mind logic would say they’re more likely to fall than rise.
Having said that no one has a crystal ball so who knows.

Also whether it’s wise for you to cash out is a whole different question.

Dox

coop74 wrote: »

Could the CETV suddenly drop back down again? My knowledge of pensions is virtually zero unfortunately.

It certainly could. Doesn't mean it will - nor does it mean you should transfer out.

Suffolk_lass

coop74 - You say you don't understand pensions - this might help - your old Thames Water Pension is a defined benefit pension, based on number of years you worked there, your final salary at the time you left plus inflation - that is compounded over the years between the point you left and the normal pension age (NPA) for the scheme. The NPA may be written into the rules as anything between 55 and state pension age (SPA). You do not say your age but SPA is likely to be 66-68 for you.

According to Steve Webb, the Strategy Director for Royal London (and former pensions minister), "for normal healthy people, it is unlikely that transferring out of a DB scheme will offer the same return as a DB pension but it can work for people where life expectancy is limited, they are divorcing and it is part of the settlement, or they need the money to pass on to others in their family".

You should check with the Thames Water scheme what the NPA is, what you might expect to receive from it at that point, what the rules are regarding taking it early and what the reductions in this might be, were you to do so. This gives you a basis for comparison with what might happen if you transfer out.

Your increase in CETV may be because there is a desire to reduce the number of pensioners they have lifelong responsibility for and dangling a superficially impressive amount of money to get rid of them is there to incentivise them leaving. Especially as they get closer to the age when they become a pensioner.

You say you know virtually nothing about pensions. I am sat here wondering why you think you might therefore do better investing that money than a professional whose job is to safeguard your pension fund and make sure it is safe and secure? If the headline figure is attracting you, use it to compare.

Don't forget to look at what that looks like within the benefits of the scheme. You may have spousal benefits up to 2/3rds in this scheme (so your partner would receive it if you die) and you might live 40 years after you draw it, with index-linked increases, year on year built in. These might reflect RPI (retail price index), CPI (Consumer Price Index), average wage increases, or have a minimum like 2.5% (as the state pension currently has).

If you were to transfer out, look at the tax liabilities if you draw down, look at the volatility of the market and ask yourself if you will invest yourself, possibly following the advice of an IFA (who you will pay) in funds (that will charge you a management fee), on a platform (that will charge you) or use a fund management company (for which you will pay) and work out what your money needs to do to preserve and grow its' CETV value.

My friend recently described his life in four sections - beyond infancy he was in education for about 20 years, then worked for 20 years, then resigned and lived on his savings for a while but has been cycling and visiting places all over the world for 20 years, and hopefully has about 20 years left as his proper retirement, where he might need a bit of extra help to support him. His pension for the 20 years work, was the same as if he had continued to work for another 15 on the same salary as that when he left - thanks to compound indexation.

HHarry

Coop,

Funnily enough I was looking at my Thames Water numbers the other day. I thought the CETV looked 'good' - although when I worked out the multiplier (and I can't remember the exact figure, 25-30?) it wasn't quite as special as some of the other examples on the forum.

It is a pretty good final salary pension. Index linked with Spouse benefits. And it looks like that (depending on when you left) you can take it at 60 with no reduction.
I haven't rushed to give it up.

Dox

Suffolk_lass wrote: »

coop74 His pension for the 20 years work, was the same as if he had continued to work for another 15 on the same salary as that when he left - thanks to compound indexation.

Revaluation in deferment wouldn't compensate for the 15 years of service he didn't get + increases in pensionable salary (he isn't likely to have worked for another 15 years without a salary increase!).

Suffolk_lass

Dox wrote: »

Revaluation in deferment wouldn't compensate for the 15 years of service he didn't get + increases in pensionable salary (he isn't likely to have worked for another 15 years without a salary increase!).

No that is true. However, at the point he left he was on (pensionable) shift pay of 33% including on-call allowances, and had just been working for a year on temporary promotion, (both of which were about to be reduced or removed) and that did mean the best of his last three stood the test of time and was the same as his salary at his established grade at the point when he reached 60. Don't forget public servants have had no proper pay increases since 2007, whereas inflation has regularly increased