CETV - Expected drop since Dec 21 and GMP question

Fairwinds

We have had a lot going on with our company DB scheme which was capped from 2010 with 1% salary growth - so had become poor

SEpt 23 scheme closed and moved on  to DCscheme
Scheme also sold to an insurance company - who now do the calculations and not sure if they have changed factors ( we were told we would not be disadvantaged by this

Since last getting a CETV at age 55 in 2021 value has fallen 44%, despite having 2 more years added (2/80ths), 2 x 1% capped pay rises,and a statutory revaluation - 1 year after deferment ( 5% on 66%, 2.5% on 33%) and being 3 years older and having a clause that says - on the 66% part no deduction at age 60. This drop is much bigger than I expected 

So first question.  1)Is this in line with what could be expected for normal market forces ( inflation Gilts etc) ?
2) Early deduction seems to have only dropped from 20.2% at age 55 to 19.4% now - again much harsher than I would have expected given the age 60 clause 

3) The breakdown of different bits of my pension I asked for shows an item as GMP accrued prior to 06/04/1988 - I only started my 1st job in Aug 1988, so is it possible for me to have earned GMP prior to April 88 or is this a mistake

Any help/thoughts are appreciated and I hope we are not being taken for a ride!

Hoenir

Fairwinds said:

So first question.  1)Is this in line with what could be expected for normal market forces ( inflation Gilts etc) ?

Base rate was 0.10% in 2021. Now 4.75%. 

15 year Gilt yields have risen from around 1.2% in 2021 to 4.9% now.  

Market forces at work. 

RogerPensionGuy

On this topic. 

I've seen these DB schemes frozen or heavy pay rise limitations and employee contributions go up over the years.

Some friends researched and/or got advice and deffered these schemes as deferral resulted in pension value out pacing continuing paying in, so no inputs actually got better pensions than keep putting in due inflation in defferment was bigger.

Some people went down the CETV route and put in to SIPPs, the people who put the CETV in to a low cost SIPP have achieved really good outcomes. 

On top of the defferal or CETV route, they joined the DC company schemes and just maintained their current old DB contributions and some filled up AVCs on salary sacrifice and again, it worked out well. 

Life is strange, 2010whenever, good DB schemes curtailed stunted and actually being proactive deffering or the CETV route has worked out very well for some. 

Tommyjw

For an example of generic CETV changes see https://www.xpsgroup.com/what-we-do/technology-and-trackers/xps-transfer-watch/xps-transfer-value-tracker/  

On 3) this seems like a mistake so I would query it. Definitely no transfer from your previous job for example ?

MarkCarnage

Re CETV change, as @Hoenir says, that ship has sailed. There was a fairly lengthy window of opportunity between 2015 (pension freedoms) and late 2021 when gilt yields were artificially low due to QE. That meant that DB pension transfers made economic sense for a significantly higher proportion of cases than previously. Perhaps as many as half. It's now back to the position where it will only make sense for a very small minority. 

Regarding your second point, what is the normal retirement age for the scheme? Sounds like it might be 63? Is it possible that the 'age 60' clause you mention was a discretionary one? If it was, and if the Scheme has been subject to a buy out, then the receiving insurer is perfectly within their rights to stick by the rules. Alternatively, if it is written in the rules, they may have made an error (unlikely, as the Scheme Rules are pretty thoroughly checked before the pricing for a buy out is agreed). Factors may have changed a bit since 2021 as well....the process is very loosely linked to CETV one, but reviewed less often usually. 

Point 3 sounds like a mistake from what you write unless there is some carry forward from a transfer in from previous job. 

snowlaser

1) Unfortunately a 50% drop on a CETV for someone in their late 50s doesn't seem unreasonable from 2021 to 2024

2) Early retirement factors are also impacted by changes in yields, and would be expected to become harsher as yields increase

3) On the face of it this seems like an error, because you wouldn't be able to accrue pension before 6 April 1988 if you only started work in August 1988!  Might be worth querying that.

Cobbler_tone

I had my eye on these valves and unfortunately only hit 55 last year, so a bit late for me.
I have colleagues in the factory who took CETV's of £700-800k 4-5 years ago. That ship has now sailed.

RogerPensionGuy

The link below shows many examples of CETVs having big changes. 

Thought I remember seeing many DB schemes that wanted to offload liability and risk were offering rates at age 60 maybe a few or 5/7 years ago rates like X 33, 37, 40 and about. 

Yes in hindsight, just think of people that ported out at say X 40 and plonked it in a sensible low cost SIPP and ignored a few big % drops. 

***

https://forums.moneysavingexpert.com/discussion/6493721/cetv-or-cash-equivalent-transfer-values-on-pension-transfers-post-yours/p1

MarkCarnage

RogerPensionGuy said:

The link below shows many examples of CETVs having big changes. 

Thought I remember seeing many DB schemes that wanted to offload liability and risk were offering rates at age 60 maybe a few or 5/7 years ago rates like X 33, 37, 40 and about. 

Yes in hindsight, just think of people that ported out at say X 40 and plonked it in a sensible low cost SIPP and ignored a few big % drops. 

***

https://forums.moneysavingexpert.com/discussion/6493721/cetv-or-cash-equivalent-transfer-values-on-pension-transfers-post-yours/p1

Schemes offered transfer values that were estimated to be neutral for them in the sense that they didn't disadvantage those remaining...with negative real yields of almost 3% on long dated gilts it was better to hold the TV in cash in fact (not that I would be suggesting that as a long term strategy!). 
You could probably have put the transfer value just about anywhere except long dated gilts/index linked gilts and it would have done better. Even high growth equities which tanked initially have recovered pretty well in general. It was a no brainer for those who had the knowledge to exploit what was a clear market anomaly and who could get a CETV signed off as appropriate. However, as ever, there was the danger of unscrupulous advisers transferring funds into extremely dubious, indeed fraudulent investments to exploit some people. 
This article from 8 years ago summarises well the unique combination of conditions which led to this scenario. Stuart Fowler wrote a number of very good articles on the whole subject, some more technical than others but his logic was hard to fault. 
https://fowlerdrew.co.uk/misc/ft-pension-transfer-stampede/

Fairwinds

Thanks for the replies - Pretty devasting to be looking at £700k at 55 and thinking lose the early penalties and should be looking at £1m, to now getting a figure in the £300s

On the GMP - I'm reluctant to raise in case it detracts from my pension further - is there any way this could be beneficial?

Cobbler_tone

Fairwinds said:

Thanks for the replies - Pretty devasting to be looking at £700k at 55 and thinking lose the early penalties and should be looking at £1m, to now getting a figure in the £300s

On the GMP - I'm reluctant to raise in case it detracts from my pension further - is there any way this could be beneficial?

I had the same during a divorce. The CETV was used on the D81 at £678k and by the time the decree absolute was stamped (ironically rejected by a judge the 1st time around due to an apparent imbalance in my favour!) the CETV was down to £410k...but you don't revise the D81. (a whole different topic). As the pension was the only thing I kept, on paper it was a 50/50 split of pension vs equity (i.e. cash) but after 5 years you definitely just want it over the line and would have coughed up more to get it done!

The good news is that the DB pension (albeit with your low growth) has been protected throughout. Always going to be a dodgy strategy to bank on 'cashing in' a DB pension.