DB Transfer Value

Linton

Pension schemes have to ensure that members are treated equally.  The CETV represents the cost to the scheme of providing your guaranteed pension.  To be fair they cannot exchange your pension for more or for less than that amount.

In 2021 interest rates were very low at < 1% therefore your pension would have been expensive for the scheme, Now interest rates are >4% so the scheme need allocate less money to providing your pension.

You have lost nothing. The scheme promised a particular income in retirement and that has not changed. It never promised anything else.

Cobbler_tone

Lowtrawler said:

sgill06 said:

Cobbler_tone said:

You won't like the answers you are about to get.

The (transfer) value may have changed but the benefits of the pension won't have. In real terms you haven't 'lost' anything. Especially as to transfer it would have cost you a big chunk of it.

I'm looking for help so will take all the answers i can get, good or bad :-:smile: I realise the benefits are the same whenever i take my pension but had i been able to take it when initially requested, it would have been much more than what it is now, even with costs

Back in 2022, £63k would likely have bought you a £1,500 per year index-linked annuity. Today, £30k will likely buy you a £1,500 per year index-linked annuity. The market has moved and hence the reduction in transfer value. In pension terms, there is no difference between the £63k and £30k.

Won't buy them the same new car though. 
The silver lining being that it will be lot easier to get their hands on it if it drops under £30k.

The serious advice is to look at what the annual amount is now...at 56, 57, 58 etc and decide when it makes sense to start drawing it in line with their needs.

MeteredOut

@sgill06 Alongside the slim chance of an advisor recommending you take a lump sum, do you realise that advice would cost in the region of £5-10K? I'm sure your future self will thank you for keeping the funds in the DB scheme.

sgill06

Thank you everyone for your helpful comments.  It's good to get things into perspective and seeing it from others point of view. Much appreicated.

Albermarle

Lowtrawler said:

sgill06 said:

Cobbler_tone said:

You won't like the answers you are about to get.

The (transfer) value may have changed but the benefits of the pension won't have. In real terms you haven't 'lost' anything. Especially as to transfer it would have cost you a big chunk of it.

I'm looking for help so will take all the answers i can get, good or bad :-:smile: I realise the benefits are the same whenever i take my pension but had i been able to take it when initially requested, it would have been much more than what it is now, even with costs

Back in 2022, £63k would likely have bought you a £1,500 per year index-linked annuity. Today, £30k will likely buy you a £1,500 per year index-linked annuity. The market has moved and hence the reduction in transfer value. In pension terms, there is no difference between the £63k and £30k.

A good way of looking at it.

On the other hand £63K in a medium risk pension fund in the middle of 2022, would today be worth about £75K, which would buy a £3500 pa annuity.

I turned down a large CETV around about 2019. The advice was free ( paid by ex employer) and it was a bit easier to transfer out then as an insistent client.
I am pretty sure I would be richer today if I had, but maybe would have developed a nervous tic with most of my assets at the mercy of the markets instead of maybe 60% of them.

Altior

If the CETV of the pension is 'irrelevant', and it's the value of benefit in today's money that counts, then the required advice benchmark should be based on the value of benefit upon maturity, not the CETV. Which actually makes perfect sense, as what people who transfer are giving up is the implied value of benefit upon maturity, and not the CETV. 

£1500 per annum is obviously just over £100 pcm in today's money, in reality a negligible amount and not a game changer to anyone. Whereas the CETV invested in equities over a decade or more could easily be a game changer, and certainly beat the implied cash value of the DB pension over the long term. 

QrizB

Altior said:

£1500 per annum is obviously just over £100 pcm in today's money, in reality a negligible amount and not a game changer to anyone. Whereas the CETV invested in equities over a decade or more could easily be a game changer, and certainly beat the implied cash value of the DB pension over the long term. 

We don't know what the pension payable will be, or the indexing. £1500pa was a guess from one of the commenters.

OP is 58 so NPA could be as little as two years away, or as much as nine years. Something else we don't know!

OP if an IFA recommended against transferring out in 2022 when the CETV was £60k, I can't see how another IFA would recommend in favour now when the CETV has halved.

Altior

QrizB said:

Altior said:

£1500 per annum is obviously just over £100 pcm in today's money, in reality a negligible amount and not a game changer to anyone. Whereas the CETV invested in equities over a decade or more could easily be a game changer, and certainly beat the implied cash value of the DB pension over the long term. 

We don't know what the pension payable will be, or the indexing. £1500pa was a guess from one of the commenters.

OP is 58 so NPA could be as little as two years away, or as much as nine years. Something else we don't know!

OP if an IFA recommended against transferring out in 2022 when the CETV was £60k, I can't see how another IFA would recommend in favour now when the CETV has halved.

We know it should broadly have the purchasing power of today. It doesn't tend to grow in real terms over time, unlike equities. It can actually lose purchasing value if the indexing is capped. 

My point was in general terms, rather than specific to the OP. Though I do have an analogous scenario personally, where I had a modest DB valued at nearly £60K CETV, now ironically it has dropped to just below £30K, and I could transfer without advice. However, the £60K added to my DC portfolio would now be £100K+.  

Linton

Altior said:

If the CETV of the pension is 'irrelevant', and it's the value of benefit in today's money that counts, then the required advice benchmark should be based on the value of benefit upon maturity, not the CETV. Which actually makes perfect sense, as what people who transfer are giving up is the implied value of benefit upon maturity, and not the CETV. 

£1500 per annum is obviously just over £100 pcm in today's money, in reality a negligible amount and not a game changer to anyone. Whereas the CETV invested in equities over a decade or more could easily be a game changer, and certainly beat the implied cash value of the DB pension over the long term. 

The CETV will also increase the nearer one is to taking the pension since it represents the cost now of providing a pension in the future.  Furthermore the DB pension is probably guaranteed to fully increase with inflation in that period. So the risk in giving up the DB pension is much higher than you suggest especially if you are fairly close to retirement.

A second important factor is longevity. Keeping the DB pension protects you from the risk of reaching extreme old age. If you invest in equities instead you must cover that risk yourself at a significant cost in extra capital value at retirement.

 A third consideration is the responsibility placed on you. A well managed portfolio will probably produce a higher return than a poorly managed one. Are you confident in your ability to provide that management despite crashes and periods of high inflation despite the uncertainty and stress? 

LHW99

 A third consideration is the responsibility placed on you. A well managed portfolio will probably produce a higher return than a poorly managed one. Are you confident in your ability to provide that management despite crashes and periods of high inflation despite the uncertainty and stress?

And possible decrepitude and loss of marbles?