CETV Calculations

AlanP_2

I have received an updated CETV (£224k) for a deferred DB that I am likely to accept, and will be taking the relevant advice.

I / we have other DB income streams that will provide enough for our retirement as well as a reasonable amount in additional SIPPS, investments and savings; and as this pension does not increase once in payment the logic of transferring seems sensible. My question relates to CETV calculations and Gilt yields.

Accompanying the quote was a document setting out the assumptions used which includes the following:

Summary of CETV assumptions from 1 August 2020

Yield on gilts

Single yield which when used to discount the cash-flows of a Section gives the same present value as when discounting the cash-flows with the gilt yield curve. The table on page 2 sets out the date on which gilt yields used are determined

Pre-retirement Discount rate

Set equal to the yield on gilts plus 1.8% p.a.

Post-retirement Discount rate

Set equal to the yield on gilts plus 1.8% p.a.

Summary of Gilt Yields Used to Calculate CETV

Effective date of CETV calculation - Date on which gilt yields are determined

1 February to 30 April - 31 December

1 May to 31 July - 31 March

1 August to 31 October - 30 June

1 November to 31 January - 30 September

Looking on the DMO site https://www.dmo.gov.uk/data/ExportReport?reportCode=D4H I can see that average Gilt Yileds were as follows for September / December 2020 respectively:

Short (5-Year) @ -0.08% / -0.04%
Medium (10-Year) @ 0.21% / 0.25%
Long (30-Year) @ 0.77% / 0.81%

So, are September's yields better for me than December's or not? If I asked for a new CETV at the start of February which would be based on December yields rather than September yields could I expect the CETV to have increased or decreased, and by approximately what percentage (or amount) assuming no other factors have changed?

Secret2ndAccount

Here's how I see it. Gilt yields have gone up. So the pension scheme is getting more income from its investments. Therefore they feel more able to deal with paying you a pension over the long term. Therefore they are less keen to get rid of you. So the CETV goes down.  Gilts+1.8 goes from about 2.0% to about 2.04%. That's +2% so your CETV should be down 2% or 4.5k. However, there are many other factors affecting CETV's:  predicted future interest / gilt rates; updated actuarial data / predictions; the financial position of your particular scheme; the fact that you are now 3mths closer to retirement. All of these together could cause your CETV to fluctuate by 5k even if gilts had not moved at all.

Brynsam

AlanP_2 said:

So, are September's yields better for me than December's or not? If I asked for a new CETV at the start of February which would be based on December yields rather than September yields could I expect the CETV to have increased or decreased, and by approximately what percentage (or amount) assuming no other factors have changed?

Your scheme is only obliged to issue one CETV quote in any 12 month period. They may be prepared to issue another one (you could be asked to pay - around £600 is fairly typical) but are very unlikely to do so while the current CETV is still within its guarantee period.

AlanP_2

Brynsam said:

AlanP_2 said:

So, are September's yields better for me than December's or not? If I asked for a new CETV at the start of February which would be based on December yields rather than September yields could I expect the CETV to have increased or decreased, and by approximately what percentage (or amount) assuming no other factors have changed?

Your scheme is only obliged to issue one CETV quote in any 12 month period. They may be prepared to issue another one (you could be asked to pay - around £600 is fairly typical) but are very unlikely to do so while the current CETV is still within its guarantee period.

They state a charge of £250, but I have had 2 inside 12 months before and not been charged. This was because I can't get an estimate on their portal due to a transferred in amount from a previous employer. When this feature was launched i queried why it didn't work for me, got that explanation and a "free" valuation, may not work again though.

I wondered whether it would even be possible to get a 2nd quote whilst the first is still valid so thanks for confirming that.

@Secret2ndAccount - Thanks for having a go at the calculations.

hyperhypo

I'd ask again at least.

After reading your thread i had a look on my provider site (Mercer) and they have dropped (or disabled) the relatively new addition of an automated CETV generation tool. When this was first introduced last year the published amount was significantly higher than last requested value, but seemed to remain constant at this value (i was getting consistent figures of c. £425k requested and c. £550k online). Consistent over last 2 years.

I found the higher value hardly credible, but the only way to have checked this would be to put in a formal request.