My Old Tesco DB Pension that closed in 2014, the CETV has reduced significantly?

IAMIAM

I have on old pot which pays £5k per annum aged 65. The CETV used to be around 150k and is now always around the 40-50k mark. Is this correct, I was hoping to use the CETV value and bridge the gap between 60 and 65 but now it seems worthless and more lucrative to actually take the 5k pension. Any thoughts on why this is? Current age 40.

Linton

The reason why the CETV has fallen significantly is that the CETV is a measure of how much money the fund needs now  to be able to pay you the guaranteed income you are due.  Since interest rates have risen from near zero a year or two ago to close to 5% now the scheme needs much less money in its coffers to pay for your future pension.

Or looking at things the other way around, the scheme would have held bonds paying perhaps 0.1% that will mature in line with you being paid your pension.  Those bonds are worth a lot less now since investors can get 5% or so interest from the market.  That does not affect you since the bonds will be repaid at maturity for their face value.

IAMIAM

So in summary, Tesco DB is now well funded to pay its liabilities, so its not as lucrative to transfer out as it once was?!

molerat

CETVs are based on the cost to provide that pension / how much it is worth to ditch their responsibility.  As the markets / investments have improved it now needs less to provide that pension hence the reduction in CETV.  Peak CETV value was a couple of years ago and things are now back in normal range.

gm0

CETV is the capital offered to buy out via transfer to DC instead of pay you the DB pension (and spouse benefit per terms)

When government bond / gilt rates are low.  The amount of capital to match that cashflow from coupon and bonds expiring is huge.

When gilt rates are high. The amount of capital to match that cashflow is smaller - a lot smaller

So the central bank interest rate for BoE (which largely drives gilt rates) and CETVs move on a seesaw. One up.  One down. It's your share of required assets needed to buy that benefit (cashflow)

There are other per scheme factors why the offer can be slightly more or less generous - but basically to be "fair" to all pensioners which is the trustee obligation they need to buy you out at a correct - fairly near to liability matching price.

Pension schemes are required to invest heavily in liability matching investments like government bonds

Transfer is now impossible without advice.  You are over 30k.  So will require it legally.  No option.  So you can expect to lose 10% of 40-50k to be advised whether to do it.  And only if the advise is definitively positive will you find a provider to take you easily.  It's a dead end more or less.  Take the pension and forget about CETV variation

Ayr_Rage

CETV values have fallen off a cliff in the last few years.

Just "google" it and you will be enlightened.

JoeCrystal

IAMIAM said:

I have on old pot which pays £5k per annum aged 65. The CETV used to be around 150k and is now always around the 40-50k mark. Is this correct, I was hoping to use the CETV value and bridge the gap between 60 and 65 but now it seems worthless and more lucrative to actually take the 5k pension. Any thoughts on why this is? Current age 40.

Yep, that sounds about right. Considering how difficult it is now, I am surprised you thought transferring CETV in 20 years may be possible. It is not worthless; you are still getting an annuity of £5k per year in today's term at some point in the future. That is very valuable, after all. 

If you were a teacher within the first year of starting the job, you could have transferred your DB pension scheme into the Teacher's Pension Scheme (especially with an iron-clad promise by the taxpayers to fund it). Still, I am guessing you didn't bother. The transfer quote for what kind of income it would buy you would be interesting at least

Hoenir

IAMIAM said:

So in summary, Tesco DB is now well funded to pay its liabilities, so its not as lucrative to transfer out as it once was?!

If you had of transferred out and bought UK Gilts.  Then you'd have lost a lot of money at this point in time. Given the sharp rise in BOE base rate. 

Marcon

gm0 said:

Transfer is now impossible without advice.  You are over 30k.  So will require it legally.  No option.  So you can expect to lose 10% of 40-50k to be advised whether to do it.  And only if the advise is definitively positive will you find a provider to take you easily.  It's a dead end more or less.  Take the pension and forget about CETV variation

Financial advisers aren't and never have been the gatekeepers - something which has been widely misunderstood, often by the advisers themselves.

Stakeholder pension schemes are required to accept transfers in from any UK registered pension scheme - and it's still possible to open one for yourself without the involvement of a financial adviser.

Advice is required if the transfer value is over £30K and the scheme has 'safeguarded benefits' (all DB schemes do) before the scheme can pay over the transfer value, but the requirement is to show a member has received advice. They don't have to follow it.