Should we accept this Transfer Value (CETV)?

Hobgoblin63

My wife has a pension 

Hobgoblin63

Sorry about that - posted by mistake!
 My wife has a defined benefit pension which she would like to transfer to another fund.  She was given a Transfer Value (CETV) on 31st of December which will expire on the 31st of March, so she has to decide whether to not to accept it by then. My question is: given the poor performance of the financial markets since then (and the poor outlook going forward) is it likely that Transfer Values have risen sharply in recent weeks?  My thinking is that with a poorer economic outlook, CETVs might improve as pension funds look to offload the risk.  She has received approval from an independent finacial adviser for the transfer, if she wishes to make it.
Many thanks!

dunstonh

My question is: given the poor performance of the financial markets since then (and the poor outlook going forward) is it likely that Transfer Values have risen sharply in recent weeks? 

The transfer value CETV is influenced by a range of factors but one of the major ones is pricing the liability.  That involves gilt yields.    A very rough and ready guide that ignores all other influences is that every time interest rates rise, the CETV will fall.

Short term returns with equities have virtually no impact on CETVs.

Hobgoblin63

Thanks for your quick answer.  It’s clearly a more complex question than I thought!

The chart on the FT site (that I’m not allowed to link!) shows that UK 10 Year Gilt Yields were pretty low on 31st December when the CETV was calculated (0.97) compared to today (1.30).

Also, an article on the FTadviser site (“Falling gilt yields boost DB transfer values”)  suggests that low yields are associated with high transfer values.

So my guess based on that is that her current CETV offer is probably a good one.

Interest rates also look to be heading upwards rather than down, which would also lead to lower CETV values, by your logic.

I’m no expert though (which is why I’m here asking questions) so any insight you can give is appreciated!

Sunnylifeover50plan

Might it be worth sharing what the normal retirement date is for the DB pension, what the annual pension is projected to be, then it might be easier to see how many multiples of the pension you are being offered for the CETV figure.

I've probably expressed this clumsily but it's another way of assessing if your offer is where it should be.

Hobgoblin63

OK here are some figures:

She will be 61 in December.  This is a deferred pension and one of several that she has.
Her pension would pay £3,473 pa if she retired immediately or £3,632 at age 61.
The CETV value is £122,766, so it's a multiple of 35.3.

Marcon

Hobgoblin63 said:

Sorry about that - posted by mistake!
 My wife has a defined benefit pension which she would like to transfer to another fund.  She was given a Transfer Value (CETV) on 31st of December which will expire on the 31st of March, so she has to decide whether to not to accept it by then. My question is: given the poor performance of the financial markets since then (and the poor outlook going forward) is it likely that Transfer Values have risen sharply in recent weeks?  My thinking is that with a poorer economic outlook, CETVs might improve as pension funds look to offload the risk.  She has received approval from an independent finacial adviser for the transfer, if she wishes to make it.
Many thanks!

Only if the employer sponsors an enhanced transfer exercise - which isn't necessarily very likely when the economic outlook is poor, so I wouldn't rely on that reasoning, however reasonable it feels!

I really wouldn't worry about a straw poll of what people think. She's had independent financial advice based on a full understanding of her risk appetite and other relevant factors, so whether it's a 'good' transfer value in the eyes of strangers who know nothing about your wife or her situation isn't going to add anything your adviser won't have covered (or can't be asked now). They key question is why does she want to transfer and what would a DC scheme do for her that her DB scheme can't do?

Bear in mind that her scheme only has to be provide one free CETV in any 12 month period. They may decline to issue another one, or charge for it, if she asks for another quote when this one expires. It could go up or down - and of course she would need to pay for further financial advice, since the advice she's receives relates to this transfer value and the current financial conditions.

Thrugelmir

Hobgoblin63 said:

Also, an article on the FTadviser site (“Falling gilt yields boost DB transfer values”)  suggests that low yields are associated with high transfer values.

So my guess based on that is that her current CETV offer is probably a good one.

Interest rates also look to be heading upwards rather than down, which would also lead to lower CETV values, by your logic.

The bond bull market has lasted 40 plus years. On the cusp of a new era. Change of Central Bank policies will likewise create a new playing field. 

MX5huggy

Hobgoblin63 said:

OK here are some figures:

She will be 61 in December.  This is a deferred pension and one of several that she has.
Her pension would pay £3,473 pa if she retired immediately or £3,632 at age 61.
The CETV value is £122,766, so it's a multiple of 35.3.

What’s the index linking on the DB? 

Thrugelmir

Hobgoblin63 said:

Her pension would pay £3,473 pa if she retired immediately or £3,632 at age 61.

And at normal retirement age?