CETV what to do with it ?

Perfo

QrizB  -   thanks for the graph... but  what does it mean? If the risk/liability to the providers of a DB scheme is high  then the CETV will be high as they want to dump the liability I can see that (wrongly maybe ) . But how does that relate to the annuity rates ?  I'm learning a lot from this chat so thanks to you and the others that know stuff for taking the time to share it... 

ian16527

Perfo said:

QrizB  -   thanks for the graph... but  what does it mean? If the risk/liability to the providers of a DB scheme is high  then the CETV will be high as they want to dump the liability I can see that (wrongly maybe ) . But how does that relate to the annuity rates ?  I'm learning a lot from this chat so thanks to you and the others that know stuff for taking the time to share it... 

This is what I was told but may be wrong.
This is a simplistic summary.
Long term pensions are funded by the income from buying gilts. If the yield is low, then more gilts are required to give you your pension, hence the larger CETV, as your pension company has calculated that this is the amount of gilt value needed to provide you with your benefits.
If Gilt yield are high, then they dont need as many hence the lower value.

Conversely, annuities are funded the other way, so when gilts are high, you get more income from your initial pot of money, therefore an higher annuity rate

QrizB

Perfo said:

QrizB  -   thanks for the graph... but  what does it mean?

As a gross simplification (the first of several in this post), high annuity rates = cheap pensions = low CETVs.

Annuity rates are now the highest they've been for 15 years.

Back in early 2021, when that chart was showing 4786, a 65-year-old would have needed to stump up £209k to buy a pension of £10k per year for the rest of their life. You can think of £209k as being the CETV for that pension.

In July 2023, the chart shows 7385. That same £10k a year will only cost £135k.

I'm fairly sure that if the chart continued further to the left (so, had values prior to mid-2006) rates would mostly have been in the 6000-8000 range for the previous couple of decades.

Perfo

Thanks for both your comments that sort of makes sense.  The DB scheme has advantages and disadvantages. If you consider how much I've paid in to the scheme and how much my company have paid in, lets say for arguments sake it was £209K total. That means in 2021 I would have got a pension of 10K but now I would have (209/135) * 10K = circa £15.5 K but of course my DB scheme would pay the same.