HSBC DB Pension Transfer Value has gone down

TheGoldfish

Every so often I log onto the Equiniti website to check on my HSBC DB pension transfer value. Today I've noticed the transfer value is about £50k less than it was six months ago and is even lower that it was a year ago. This would appear to be down to a reducion in the amount under "Value of Post 5 April 1997 Pension benefits (in excess of GMP)"

What would be the reason for this?

Thank you

MX5huggy

Rising interest rates, particularly on government gilts mean that DB schemes cost of providing the guaranteed income has reduced so their cost of you staying in the scheme is reduced. 

TheGoldfish

So basically they are not as keen/desperate to get rid of me as they were a year a go?

Marcon

TheGoldfish said:

So basically they are not as keen/desperate to get rid of me as they were a year a go?

Nothing to do with 'getting rid of you'. Simply the way financial markets have moved - the cost of providing your benefits within the scheme has reduced because of this, therefore your transfer value has also gone down.

sheslookinhot

The current economic climate has reduced CETV’s, by 25-40%.

Pat38493

Does this really make sense in the long term?  Most DB pensions would be in payment for decades - does it really make sense for values to swing so much based on short term economic conditions?  Or are those DB schemes somehow able to lock in those higher interest rates for many years?

daveyjp

DB schemes are revalued every few years to ensure they are sustainable for the expected level of payout 20-50 years into the future.

This revaluation process takes taking into account expected short term market changes.

DB CETV is a very different calculation which reflects the situation as of now.

dunstonh

Today I've noticed the transfer value is about £50k less than it was six months ago and is even lower that it was a year ago. 

As to be expected.    Most schemes have a CETV around half what it was 12 months ago.

What would be the reason for this?

Gilt yields have increased.   At one point this year, yields were back to 1990s levels.  Now its back to pre-credit crunch levels.   Effectively, all the increases that occurred post credit crunch, when gilt yields dropped, pushing CETVs up have been reversed.

So basically they are not as keen/desperate to get rid of me as they were a year a go?

That is nothing to do with it.  In fact, most schemes didnt want to get rid of you during the period of low gilt yields as it cost them more.  Now it costs them less.

Does this really make sense in the long term?  Most DB pensions would be in payment for decades - does it really make sense for values to swing so much based on short term economic conditions?

Depends on your view of short term.   It was 2008 when gilt yields started to fall and its 2022 when they reversed.  14 years of difference. 

They are now in the window of the historic norm.  The period from 2008 to 2021 was an anomaly.

Or are those DB schemes somehow able to lock in those higher interest rates for many years?

It is nothing to do with the underlying investments.  It is to do with the calculation of the CETV, which includes gilt yields as a multiple.

Albermarle

That is nothing to do with it.  In fact, most schemes didnt want to get rid of you during the period of low gilt yields as it cost them more.  Now it costs them less.

Although some schemes did seem keen to offload as many deferred pensioners as possible. Mine had two separate attempts, including roadshows, free financial advice, many letters/reminders. I think even some kind of added tax free bonus if I remember correctly.

Pat38493

dunstonh said:

It is nothing to do with the underlying investments.  It is to do with the calculation of the CETV, which includes gilt yields as a multiple.

Is this the same type calculation method used to purchase an annuity or whatever?  If I cashed in my DB scheme, would I then find that the price to purchase an identical annuity was similar?  

I wonder if these are true representations of the value at any point in time in the real world.  Last year I was offered a CETV of 780,000 for my DB pot.  If I took that and then invested it until my normal NRA, even with modest net average returns of around 2%, I could have then invested that money and safely taken more than what my DB pension is projected to be worth at NRA with starting withdrawal of around 2.5% which almost certainly would mean I died with more than where I started even if I lived till 110.  Therefore that seems like I should have bitten their hand off (if I could have got past the required advice situations).

On the other hand if it's 40% less it's a different matter, but my situation in terms of my rights to the DB payouts has not changed in the meantime.

NedS

Albermarle said:

That is nothing to do with it.  In fact, most schemes didnt want to get rid of you during the period of low gilt yields as it cost them more.  Now it costs them less.

Although some schemes did seem keen to offload as many deferred pensioners as possible. Mine had two separate attempts, including roadshows, free financial advice, many letters/reminders. I think even some kind of added tax free bonus if I remember correctly.

Same here, when my ex-company closed UK operations and made everyone redundant, they offered free financial advice and an "enhanced" CETV offer. Problem was, advice was negative for most and very few providers would accept an insistent client against the advice (I know HL refused mine when I enquired about transferring it), so I am not aware of any of my colleagues who successfully transferred out, although nearly everyone took up the free advice.

Mine represented a relatively small proportion of my overall DB/SP provision, and is capped at 2.5% hence my interest in potentially transferring it. I'm now expecting it to lose value in real terms over the next decade.