HSBC DB Pension - why has my transfer out quote dropped?

System

This discussion was created from comments split from: HSBC DB Pension Transfer Value has gone down.

AntBootsy

I know this is an old post but I've been tracking my Transfer out for a few years. In September 2022 I had a very large Transfer Out quote, but each year since it's dropped significantly to 60% of that value. Where's it all gone? Every other small pension pot of mine is significantly higher.

Dazed_and_C0nfused

AntBootsy said:

I know this is an old post but I've been tracking my Transfer out for a few years. In September 2022 I had a very large Transfer Out quote, but each year since it's dropped significantly to 60% of that value. Where's it all gone? Every other small pension pot of mine is significantly higher.

It isn't a pension pot, that's the difference.

Why do you care what the CETV is?  Serious question.

Marcon

AntBootsy said:

I know this is an old post but I've been tracking my Transfer out for a few years. In September 2022 I had a very large Transfer Out quote, but each year since it's dropped significantly to 60% of that value. Where's it all gone? Every other small pension pot of mine is significantly higher.

It hasn't 'gone' anywhere. A CETV represents (in rough terms) the estimated cost to a DB scheme of providing the benefits promised to a member. As financial conditions change, so that cost goes up, down or stays static - and the changing CETV represents that situation.

Hoenir

AntBootsy said:

I know this is an old post but I've been tracking my Transfer out for a few years. In September 2022 I had a very large Transfer Out quote, but each year since it's dropped significantly to 60% of that value. Where's it all gone? Every other small pension pot of mine is significantly higher.

Read the entire thread

DullGreyGuy

AntBootsy said:

I know this is an old post but I've been tracking my Transfer out for a few years. In September 2022 I had a very large Transfer Out quote, but each year since it's dropped significantly to 60% of that value. Where's it all gone? Every other small pension pot of mine is significantly higher.

A DB scheme isnt a pot of money, it's a promise to pay a certain pension for the rest of your life. 

When you ask for a cash equivalent transfer value the pension (or insurer) has to calculate what their current estimate is for how much they'd need today to pay the total of your pension. To do this they have to take a view on how long you are likely to live, how much the pension will pay you, if any of it increases over time and if so how. This gives you an estimate of the full value of your pension but this then has to be scaled back because if your pension is £30,000 and they think you will live another 20 years they wouldnt need to give you £600,000 because the £600,000 can be invested and provide returns so you bring it down to a net present value. 

If yields/investment returns are high the value will decrease. If they are seeing longevity isnt improving as they'd expected that will mean they think you won't live as long so reduce the amount needed etc etc. Obviously things can move in different directions and so potentially offset each other or in other cases compound each other. 

Thats the benefit of DB, no matter what happens in the market you know what your income will be for life. 

dunstonh

AntBootsy said:

I know this is an old post but I've been tracking my Transfer out for a few years. In September 2022 I had a very large Transfer Out quote, but each year since it's dropped significantly to 60% of that value. Where's it all gone? Every other small pension pot of mine is significantly higher.

November 2021 was the peak value for CETVs.  They are about 60% lower than peak and back to their more typical historical range.

DB pensions don't have a pot. The CETV has nothing to do with the investments.  In very simple terms, it is the cost of replacing the defined benefits that dictates the CETV.  From 2008 to 2021, gilt yields were at record lows.  So, it pushed the CETVs up significantly.  Now gilt yields are higher, it has pushed the CETVs lower.

They wont return to where they were as they as the post credit crunch period was abnormal.   We are back to pre-credit crunch ballpark levels.

daveyjp

The CETV is less because returns on investments have increased (base rate was 0.01%, it is now over 4%).

If I promise to pay you £1,000 a year pension (which is what DB is) at 1% return I need to invest £100,000.  
If interest rate is 5%  I only need to invest £20,000.

£80,000 hasn't been lost.

Albermarle

Nothing has been lost because the promise to pay a guaranteed pension for life will not have changed at all. 

Cobbler_tone

Clearly covered to death on here but the CETV debate continues.
I knew 4 people from a different site who 'cashed in' years ago. One bought 8 buy-to-let properties (oop north) which wouldn't have been my cup of tea but he probably preferred that to driving a forklift on 12 hour night shifts. No idea what he has done since. I know another who has done pretty well and seems to be constantly on holiday.

I was on a retirement seminar last week and it concerned me that a (very intelligent) senior manager colleague was asking about the transfer out options. Although at a different location, I've known him for years so picked up offline. He is 58, wants to retire and has a DB pension of £52k at 60. I explained that values aren't what they were and although we get the advice cheaply as a taxable benefit, it may not be the wisest option for him.
For the odd few it works for, it must cost so much confusion, expense and in some cases very poor decision making. Especially those with tunnel vision who sticks their fingers in the ears when receiving advice. 
So maybe a revisit of legislation, or maybe you can't legislate for some people? Probably a tad harsh as pensions are complicated at the best of times.

Perhaps we'll have the golden era of CETV values again? Most things seem to go in circles.

Out of interest, what was the driving motivation behind the change in legislation? Was it purely to offer flexibility or an attempt to save failing DB schemes? I know my business had to throw £200m in across 3 years.

Marcon

Cobbler_tone said:

Clearly covered to death on here but the CETV debate continues.
I knew 4 people from a different site who 'cashed in' years ago. One bought 8 buy-to-let properties (oop north) which wouldn't have been my cup of tea but he probably preferred that to driving a forklift on 12 hour night shifts. No idea what he has done since. I know another who has done pretty well and seems to be constantly on holiday.

I was on a retirement seminar last week and it concerned me that a (very intelligent) senior manager colleague was asking about the transfer out options. Although at a different location, I've known him for years so picked up offline. He is 58, wants to retire and has a DB pension of £52k at 60. I explained that values aren't what they were and although we get the advice cheaply as a taxable benefit, it may not be the wisest option for him.
For the odd few it works for, it must cost so much confusion, expense and in some cases very poor decision making. Especially those with tunnel vision who sticks their fingers in the ears when receiving advice. 
So maybe a revisit of legislation, or maybe you can't legislate for some people? Probably a tad harsh as pensions are complicated at the best of times.

Perhaps we'll have the golden era of CETV values again? Most things seem to go in circles.

Out of interest, what was the driving motivation behind the change in legislation? Was it purely to offer flexibility or an attempt to save failing DB schemes? I know my business had to throw £200m in across 3 years.

The Tories needed some sort of masterstroke if they were to have a hope of winning the next election - and winning the grey vote (at a time when annuities were terrible value) .....