CETV value

wounded_panic

I am currently taking pension from a major UK employer. The scheme is DB and pays £48K pa. As I am in the early stages of divorce, I have asked for a transfer value on divorce and the scheme administrators have come back with a value of £760K. I know transfer values have come  down since their peak a few years ago but this value seems very low. I have queried it with the admin but got a response that the value is correct. Does this value seem right to people?

daveyjp

The offer is £15.80 capital sum per £1 of annual pension.

Whether its correct or right is a moot point as there is no right or wrong figure.  The amount is what the pension trustees have agreed to pay you to avoid their future pension  liability.

To generate £48k a year you would need to return 6.32% on the £760k (ignoring any inflation erosion and annual payment uplift).  BoE base rate of 5.25%.

As a comparison Local government commutation rate is £12 per £1 of annual income.

Marcon

wounded_panic said:

I am currently taking pension from a major UK employer. The scheme is DB and pays £48K pa. As I am in the early stages of divorce, I have asked for a transfer value on divorce and the scheme administrators have come back with a value of £760K. I know transfer values have come  down since their peak a few years ago but this value seems very low. I have queried it with the admin but got a response that the value is correct. Does this value seem right to people?

It is what it is - and as you don't give your age (always a key factor in CETVs) it's impossible to comment more helpfully than the answer above.

More to the point - if it's your pension and you are in the process of divorce, surely the lower the value the better?

hugheskevi

It depends on your age, and to a lesser extent the indexation rules, death benefits, and survivor benefits. Scheme funding level may also be relevant.

If you are aged 60 it is low, 70 would be more reasonable and 80 it would probably be generous.

GunJack

Rather than cetv, would it not be better for your scheme to split your membership with your (soon) ex-spouse? Surely less messy going forward

Marcon

GunJack said:

Rather than cetv, would it not be better for your scheme to split your membership with your (soon) ex-spouse? Surely less messy going forward

Not (usually) how it works on divorce. You're looking at the capital value of all assets, and simply doing as you suggest gives no idea of the underlying value of a DB pension.

Asimovs_nightfall

It all depends on how you negotiate your divorce.

The CETV provides a figure to put into the overall pot for divorce, but the reality could well be a % of the annual DB pension as part of a clean financial break. For example, if your DB pension was worth £48k p.a. then what would be a negotiated settlement that you and your ex would accept based on the pension?  Would it 60/40, or 50/50 or something else of this £48k p.a.  What would impact on this would be the split of other assets, the equity in the house, other savings etc.

It's a negotiation. 

dunstonh

 I know transfer values have come  down since their peak a few years ago but this value seems very low. 

Current CETVs are about half their Nov 2021 peak.      The period after the credit crunch saw values rise significantly.  Way higher than their historic norms.  You are not back in line where you would expect them to be.  And that means they are less attractive for transfers.

The figure you have given is within the expected ballpark.

Hoenir

wounded_panic said:

 I know transfer values have come  down since their peak a few years ago but this value seems very low. 

Interest rates have risen considerably as a consequence annuity rates have correspondingly improved. For a benchmark see what £760k will buy in terms of of an index linked annuity using HL's quote service.  

leosayer

Is the calculation for a CETV the same as a valuation for a divorce pension sharing order?

Marcon

leosayer said:

Is the calculation for a CETV the same as a valuation for a divorce pension sharing order?

Not quite sure what the question is - so my answer may not be a response to what you've actually asked. If so, apologies!

The CETV calculation is done twice: once at the time the order is made (and a %age split awarded) and then again at the time the order is implemented and actual payment of the transfer value is made.