Very low pension CETV

wild_quinine

I've been paying into a DB pension for nearly 20 years. I've made a mid-career move to a new job with a better DB scheme.

I was planning to do a transfer of my old DB to my new DB. But the transfer value given is crazy low.

For context, it's less than 75% of the contributions I've made so far (unadjusted, just the actual pounds that have gone in over nearly 2 decades)

It equates to about 9 years of pension.

Has anyone heard of a transfer value this low, or is it likely to be an error?

Marcon

wild_quinine said:

I've been paying into a DB pension for nearly 20 years. I've made a mid-career move to a new job with a better DB scheme.

I was planning to do a transfer of my old DB to my new DB. But the transfer value given is crazy low.

For context, it's less than 75% of the contributions I've made so far (unadjusted, just the actual pounds that have gone in over nearly 2 decades)

It equates to about 9 years of pension.

Has anyone heard of a transfer value this low, or is it likely to be an error?

If your new job has a 'better' DB scheme, bear in mind that your CETV will only 'buy what it buys' - you certainly won't get year for year service (unless you are in the public sector transfer club, and this doesn't sound like it), so transferring may not be in your interests, even assuming the transfer would buy you a 'service credit' rather than some sort of money purchase add-on to your new DB scheme.

Transfer values have dropped dramatically in the last year (especially the last 6 months), but if you think it's wrong, query it. Nobody here can guess the transfer value basis used by your old DB scheme.

wild_quinine

your CETV will only 'buy what it buys' - you certainly won't get year for year service (unless you are in the public sector transfer club, and this doesn't sound like it)

Not in the transfer club, no. But just to clarify, I wasn't saying that the transfer would only buy 9 years pension in the new scheme.

What I mean is that the transfer value is only a multiple of 9 times my annual pension in the old scheme.

More germanely, the value is a lot less than I've actually paid in to the scheme.

I just wondered how normal that was. I guess I just didn't expect the value of my contributions to go down over time.

Dazed_and_C0nfused

Is the CETV relevant in this situation?

Surely what matters is what the service in your old scheme will buy in the new scheme.

Have you actually got that information yet?

And in what way is the new DB scheme better?

ewaste

Perfectly plausible, depending upon the specific details. It could be a DB scheme payable at 65 with limited indexation and you are a few decades away from being able to take benefits. The scheme could also be relatively well funded therefore the liability you cause the scheme is minimal. 

I have certainly come across some examples of CETVs being extremely low due to a combination of the above.

wild_quinine

Dazed_and_C0nfused said:

Is the CETV relevant in this situation?

Surely what matters is what the service in your old scheme will buy in the new scheme.

Have you actually got that information yet?

Well I assume the new scheme is going to make me an offer based on the CETV, so I think it's relevant.

The question I'm really asking is, based on the combined experience of folks on the forum, how likely is it that this CETV is a mistake? I've never heard of a CETV this low before, but maybe someone else has.

If it's not a mistake I'll obviously just make the judgement based on the transfer value. It might not be in my interests to transfer.

I don't know too much about this stuff. I just assumed the transfer value offered would be close to what I paid in over the years, and all the guides online suggested 20x was pretty much "normal", though I know values have dropped this year.

Dazed_and_C0nfused said:

And in what way is the new DB scheme better?

When I say I've moved to a better scheme, I mean for future accruals primarily. The contribution rate of the new scheme is just over half what I was paying, and the accrual rate is essentialy double, which is night and day.

The only thing objectively bad about my old pension scheme is that it has an inflation cap, but most of my benefits are not affected by this.

hyubh

Sounds low to me, I'd definitely query it with the administrator. Although, the indicator of it being 'low' in layman's terms is the 'only 9 years of pension payments', not 'total employee contributions' - while normally you would expect a CETV to be (a lot) higher than nominal employee contributions made, employee rates could be set at whatever level. So at the other extreme, a non-contributory DB scheme is not lacking value purely because it is non-contributory.

Gary1984

CETVs can be reduced by some factor, particularly when a scheme is underfunded. Basically to stop you taking the full value of your benefits and leaving even less for the remaining members. Does your CETV mention a reduction factor or something like that?

Marcon

wild_quinine said:

The question I'm really asking is, based on the combined experience of folks on the forum, how likely is it that this CETV is a mistake? I've never heard of a CETV this low before, but maybe someone else has.

If it's not a mistake I'll obviously just make the judgement based on the transfer value. It might not be in my interests to transfer.

I don't know too much about this stuff. I just assumed the transfer value offered would be close to what I paid in over the years, and all the guides online suggested 20x was pretty much "normal", though I know values have dropped this year.

A DB transfer value is normally way more than you personally have contributed, since it also includes employer contributions (or their notional equivalent in unfunded schemes). Is there any chance the quote you've got is actually for AVCs (Additional Voluntary Contributions), if indeed you paid AVCs, rather than for all your benefits in the scheme?

wild_quinine said:

When I say I've moved to a better scheme, I mean for future accruals primarily. The contribution rate of the new scheme is just over half what I was paying, and the accrual rate is essentialy double, which is night and day.

The only thing objectively bad about my old pension scheme is that it has an inflation cap, but most of my benefits are not affected by this.

The new scheme sounds a bit too good to be true, but fab if it's as glittering as you believe!

When you say the actual rate is 'essentially double', would you just like to give the accrual rate in the old scheme and the accrual rate in the new one? I'm assuming you mean that the old scheme had an accrual rate of (say) 1/60 and the new scheme has a 1/30 rate - but if so, does it take into account previous pension benefits (some DB schemes still do), especially if the accrual rate is expressed as something alone the lines of 'you get a 2/3rds pension at normal retirement age provided you have at least x years of pensionable service'.

Also - did your old scheme give you any sort of automatic tax free lump sum - say an accrual rate of 1/80 with a lump sum building up at 3/80 per year?

It is highly likely your new pension scheme has an inflation cap. Are you sure it doesn't?

Stubod

I have a few deferred DB pensions, and for the last 10 years I have checked my CETV's annually, but this year when I checked (a few weeks ago), they had all reduced by around 40% compared with previous years, (I am due start taking the pensions within the next 12 months).

I am not too bothered as I had already decided to take the pensions rather than take the CETC anyway, but it still seems strange as to the reason for the sudden and rather dramatic drop, I just put it down to the current economic climate ??

Marcon

Stubod said:

I have a few deferred DB pensions, and for the last 10 years I have checked my CETV's annually, but this year when I checked (a few weeks ago), they had all reduced by around 40% compared with previous years, (I am due start taking the pensions within the next 12 months).

I am not too bothered as I had already decided to take the pensions rather than take the CETC anyway, but it still seems strange as to the reason for the sudden and rather dramatic drop, I just put it down to the current economic climate ??

There's a good explanation here: https://www.2020financial.co.uk/why-are-pension-transfer-values-falling/