CETV Value. How does it work?

IAMIAM

I currently have an old Defined Benefit Pension from a previous employer. I have left it as it is and just enquired recently around it, especially given the circumstances of late.
It says it will pay out £4500 per annum on age 65 with a current CETV value of £80k. Is it correct in thinking that if I leave this as it is, it will increase in value?
Will the actual payout annually AND the CETV value increase? I was contemplating moving it, but on reflection could I use the 80k (or whatever the value is at age 60) to facilitate a gap between planned retirement at age 60 in 20 years time and my current defined benefit pension paying out at age 65?
Thanks

Brynsam

It won't necessarily increase in value; depends on a number of factors, including financial market conditions. Any number of threads on this board about transferring/not transferring out of a DB scheme, not least the cost/problems of finding a suitably authorised advised from whom you must receive (not necessarily follow) advice, given your CETV is £30,000+.

Dox

IAMIAM said:

I currently have an old Defined Benefit Pension from a previous employer. I have left it as it is and just enquired recently around it, especially given the circumstances of late.
It says it will pay out £4500 per annum on age 65 with a current CETV value of £80k. Is it correct in thinking that if I leave this as it is, it will increase in value?
Will the actual payout annually AND the CETV value increase? I was contemplating moving it, but on reflection could I use the 80k (or whatever the value is at age 60) to facilitate a gap between planned retirement at age 60 in 20 years time and my current defined benefit pension paying out at age 65?
Thanks

Likely that the £4,500 pa will increase between now and the time the pension comes into payment - check your statement carefully.

CETVs can go down as well as up. In broad terms, they reflect the cost to the scheme of providing the promised benefits. That means the state of the markets will have an impact, as would (say) a change in investment strategy by the trustees. Many a finance director has been shocked to find that a final salary scheme's 'de-risking' strategy - moving from 'growth' assets such as equities, to calmer water such as gilts - has bumped up transfer values, because the scheme actuary has calculated it would cost the scheme more to provide the benefits. This despite the fact the member, if they transfer out, could invest in a wholly different manner...one of the mysteries of CETV calculations!

Funding position of the scheme doesn't usually have much impact, although if the scheme is seriously underfunded and the employer is in a parlous position, the trustees may be able to temporarily reduce transfer values. If so, they would need to tell the member and also indicate when they believe 'full' transfer values would be paid.

At the moment, all the above is up in the air because of the present state of play. The pensions regulator has confirmed trustees may (if they wish) suspend the issue/payment of CETVs.

cloud_dog

IAMIAM said:

I currently have an old Defined Benefit Pension from a previous employer. I have left it as it is and just enquired recently around it, especially given the circumstances of late.
It says it will pay out £4500 per annum on age 65 with a current CETV value of £80k. Is it correct in thinking that if I leave this as it is, it will increase in value?
Will the actual payout annually AND the CETV value increase? I was contemplating moving it, but on reflection could I use the 80k (or whatever the value is at age 60) to facilitate a gap between planned retirement at age 60 in 20 years time and my current defined benefit pension paying out at age 65?
Thanks

I was in a similar position to yourself with a decent DB scheme that pays out at age 65.  It wasn't until I started actually looking at retirement options that I realised that I lacked a degree of flexibility, i.e. retiring early etc.  I absolutely will not be retiring before 55 (more like 60) and so I have been making additional payments in to my DB AVC scheme (due to benefiting from Salary Sacrifice), with the idea of building a pot of money that will cover the early retirement years.  Please Note: I ensured that the AVC scheme would not be counted, or rather would not come under the rules requiring IFA Pension Specialist advice associated with DB schemes for transfers before commencing with this, and I periodically 'partially' transfer out the AVC monies in to my SIPP.  I only do the partial transfer out because the AVC charges are reasonably more than the total charges in the SIPP.  I also needed to prove (to myself) that I could complete the transfer without any issue re pension transfer advice.

If you have 20 years to go then you have more than adequate time to do something similar should you wish and leave the valuable DB schemes alone.

IAMIAM

I am fortunate that I have only ever paid into DB schemes.
My current one, local government, has a current value of £4k per annum paid at age 65 too (with a 3 year buyout)