HSBC DB Pension Transfer Value has gone down

dunstonh

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?  

Different calculation method but both use gilt yields in their calculations.     

Whilst level annuities have gone up, indexed annuities have not because the risk assessment on inflation is using higher assumptions which reduces the annuity rate.  So, effectively you have gilt yield improving it and inflation assumption reducing it.

I wonder if these are true representations of the value at any point in time in the real world.

It is a value put on the liability. 

(if I could have got past the required advice situations).

Just over a year ago, it would have been possible without much difficulty. The cheap factory line firms had gone (the ones that caused the problems) but plenty would have still been able to do it.     Most bank DB schemes were pretty easy to justify moving out on the basis of the CETV.   Whereas now, its very hard to justify.

Marcon

Pat38493 said:

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?  

No, because buying an annuity comes with a commercial mark up - the insurer is doing it as a commercial venture, so you'd be paying the costs of administering the annuity and taking on a chunk of the 'risk' faced by the insurer.

DB schemes are run as a service to members, and pay the benefits promised by the rules.

The CETV offered by a scheme also takes into account the manner in which the scheme's assets are invested and what the return on these assets is projected to be. The insurer will take a much more pessimistic view of the future!

zAndy1

There were some very generous CETV values provided a year or two ago, values that probably won't be matched for a very long time in terms of multiples of annual pension. I had a very good offer on mine, annual pension £5k , CETV £170k , growth of 3% pa would have matched the annual pension with the fund value not being eroded. If it hadn't been so ridiculously hard to turn that on paper CETV into cold hard cash I'd have probably done it and could have bought an annuity now several times what the DB pension annual pension is forecast to be. Unfortunately that horse has bolted now but I do feel those who said you should never transfer a DB pension weren't exactly vindicated by what's transpired since, personally for myself I think it would have been a very wise move but hey ho, no point crying over spilt milk eh...

Albermarle

and could have bought an annuity now several times what the DB pension annual pension is forecast to be. 

Sorry, that does not seem credible. Even with todays improved annuity rates, to buy a lifetime annuity of £5k pa at 65, with a capped link to inflation and 50% spouse payout ( all pretty standard and probably similar to your DB pension) would be in the region of £125K

Pat38493

Albermarle said:

and could have bought an annuity now several times what the DB pension annual pension is forecast to be. 

Sorry, that does not seem credible. Even with todays improved annuity rates, to buy a lifetime annuity of £5k pa at 65, with a capped link to inflation and 50% spouse payout ( all pretty standard and probably similar to your DB pension) would be in the region of £125K

Not several times then but still significantly more to the extent that it would be tempting for all but the most risk averse - same scenario I described.  

Conclusion for me is that there was a period about a year ago when CETVs were generously "overvalued".  I'm sure overvalued is not right technical word but what I mean is that it would be hard to justify not doing a transfer if you analyse the figures and could actually do one.  By chance I happened to request a CETV at that time and I remember being astonished at how high it was.

I had only just started to seriously prepare for retirement and I was, and still am, missing a lot of knowledge, but if I had known a year ago what I know now, I probably would have tried to find a way to transfer it.  It might have been though that by the time I managed to find a route to do it, the CETV would have expired and then I would have already got a much lower one!

TheGoldfish

Marcon said:

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.

It's an HSBC DB pension and my rather flippant comment was simply based on the way HSBC first stopped new members joining the scheme, then asked working members to make addition contributions and then finally stopped working members making any further contributions with future contributions going to a DC pension.

Marcon

Pat38493 said:

Albermarle said:

and could have bought an annuity now several times what the DB pension annual pension is forecast to be. 

Sorry, that does not seem credible. Even with todays improved annuity rates, to buy a lifetime annuity of £5k pa at 65, with a capped link to inflation and 50% spouse payout ( all pretty standard and probably similar to your DB pension) would be in the region of £125K

Not several times then but still significantly more to the extent that it would be tempting for all but the most risk averse - same scenario I described.  

Conclusion for me is that there was a period about a year ago when CETVs were generously "overvalued".  I'm sure overvalued is not right technical word but what I mean is that it would be hard to justify not doing a transfer if you analyse the figures and could actually do one.  By chance I happened to request a CETV at that time and I remember being astonished at how high it was.

If it was 'hard to justify not doing a transfer', I wonder why so many financial advisers, having analysed the figures,  were recommending that people stayed put...? I've yet to see any evidence of a slew of formal complaints from people who were advised not to transfer; but there are plenty jumping on the 'complain, complain' bandwagon because they were advised to transfer and now see the chance of an extra cash payment because their adviser didn't follow absolutely every letter of the FCA guidelines.

Pat38493

Marcon said:

Pat38493 said:

Albermarle said:

and could have bought an annuity now several times what the DB pension annual pension is forecast to be. 

Sorry, that does not seem credible. Even with todays improved annuity rates, to buy a lifetime annuity of £5k pa at 65, with a capped link to inflation and 50% spouse payout ( all pretty standard and probably similar to your DB pension) would be in the region of £125K

Not several times then but still significantly more to the extent that it would be tempting for all but the most risk averse - same scenario I described.  

Conclusion for me is that there was a period about a year ago when CETVs were generously "overvalued".  I'm sure overvalued is not right technical word but what I mean is that it would be hard to justify not doing a transfer if you analyse the figures and could actually do one.  By chance I happened to request a CETV at that time and I remember being astonished at how high it was.

If it was 'hard to justify not doing a transfer', I wonder why so many financial advisers, having analysed the figures,  were recommending that people stayed put...? I've yet to see any evidence of a slew of formal complaints from people who were advised not to transfer; but there are plenty jumping on the 'complain, complain' bandwagon because they were advised to transfer and now see the chance of an extra cash payment because their adviser didn't follow absolutely every letter of the FCA guidelines.

To be clear I am talking about what I suspect was a relatively short period last year where CETV values (at least for my personal case) seemed to be so high that it would be hard to see how you couldn’t make a better deal yourself with that money, unless the admins of that pension have some hidden knowledge of some future cataclysmic event.

From what I understood of other posters that was very unusual, and in “normal” times it would not be so easy.  I never sought formal advice on the matter because I actually got the impression from the internet (including this forum) that I would find it next to impossible to get a positive recommendation.

I also remembered in the meantime this evening that with my DC scheme, if I had transferred my DB pension out I would have been already bumping the LTA and I am not 55 for another year.  This was another reason why I didn’t pursue it further.

Also I suspect it would be impossible to make a complaint about being advised not to transfer until very many years later when you could show that you would have been better off with the transfer money.

Albermarle

Pat38493 said:

Marcon said:

Pat38493 said:

Albermarle said:

and could have bought an annuity now several times what the DB pension annual pension is forecast to be. 

Sorry, that does not seem credible. Even with todays improved annuity rates, to buy a lifetime annuity of £5k pa at 65, with a capped link to inflation and 50% spouse payout ( all pretty standard and probably similar to your DB pension) would be in the region of £125K

Not several times then but still significantly more to the extent that it would be tempting for all but the most risk averse - same scenario I described.  

Conclusion for me is that there was a period about a year ago when CETVs were generously "overvalued".  I'm sure overvalued is not right technical word but what I mean is that it would be hard to justify not doing a transfer if you analyse the figures and could actually do one.  By chance I happened to request a CETV at that time and I remember being astonished at how high it was.

If it was 'hard to justify not doing a transfer', I wonder why so many financial advisers, having analysed the figures,  were recommending that people stayed put...? I've yet to see any evidence of a slew of formal complaints from people who were advised not to transfer; but there are plenty jumping on the 'complain, complain' bandwagon because they were advised to transfer and now see the chance of an extra cash payment because their adviser didn't follow absolutely every letter of the FCA guidelines.

To be clear I am talking about what I suspect was a relatively short period last year where CETV values (at least for my personal case) seemed to be so high that it would be hard to see how you couldn’t make a better deal yourself with that money, unless the admins of that pension have some hidden knowledge of some future cataclysmic event.

From what I understood of other posters that was very unusual, and in “normal” times it would not be so easy.  I never sought formal advice on the matter because I actually got the impression from the internet (including this forum) that I would find it next to impossible to get a positive recommendation.

I also remembered in the meantime this evening that with my DC scheme, if I had transferred my DB pension out I would have been already bumping the LTA and I am not 55 for another year.  This was another reason why I didn’t pursue it further.

Also I suspect it would be impossible to make a complaint about being advised not to transfer until very many years later when you could show that you would have been better off with the transfer money.

Although I suspect many will be unofficially complaining that they transferred out and now the pot is 15% down, with inflation at 10%. 

Pat38493

Albermarle said:

Pat38493 said:

Marcon said:

Pat38493 said:

Albermarle said:

and could have bought an annuity now several times what the DB pension annual pension is forecast to be. 

Sorry, that does not seem credible. Even with todays improved annuity rates, to buy a lifetime annuity of £5k pa at 65, with a capped link to inflation and 50% spouse payout ( all pretty standard and probably similar to your DB pension) would be in the region of £125K

Not several times then but still significantly more to the extent that it would be tempting for all but the most risk averse - same scenario I described.  

Conclusion for me is that there was a period about a year ago when CETVs were generously "overvalued".  I'm sure overvalued is not right technical word but what I mean is that it would be hard to justify not doing a transfer if you analyse the figures and could actually do one.  By chance I happened to request a CETV at that time and I remember being astonished at how high it was.

If it was 'hard to justify not doing a transfer', I wonder why so many financial advisers, having analysed the figures,  were recommending that people stayed put...? I've yet to see any evidence of a slew of formal complaints from people who were advised not to transfer; but there are plenty jumping on the 'complain, complain' bandwagon because they were advised to transfer and now see the chance of an extra cash payment because their adviser didn't follow absolutely every letter of the FCA guidelines.

To be clear I am talking about what I suspect was a relatively short period last year where CETV values (at least for my personal case) seemed to be so high that it would be hard to see how you couldn’t make a better deal yourself with that money, unless the admins of that pension have some hidden knowledge of some future cataclysmic event.

From what I understood of other posters that was very unusual, and in “normal” times it would not be so easy.  I never sought formal advice on the matter because I actually got the impression from the internet (including this forum) that I would find it next to impossible to get a positive recommendation.

I also remembered in the meantime this evening that with my DC scheme, if I had transferred my DB pension out I would have been already bumping the LTA and I am not 55 for another year.  This was another reason why I didn’t pursue it further.

Also I suspect it would be impossible to make a complaint about being advised not to transfer until very many years later when you could show that you would have been better off with the transfer money.

Although I suspect many will be unofficially complaining that they transferred out and now the pot is 15% down, with inflation at 10%. 

Well maybe but so what if you don't plan to access the fund for 10 years?  You are right about the inflation part though if inflation stays high for several years.