Leaving Final Salary Scheme - Can you challenge CETV?

peterr_ibg · 17 June 2017 at 9:26AM

I am trying to retire early ( 55) with a final salary pension scheme that has a normal retirement age of 65

I have some health issues that mean my life expectancy is much shorter than the average, but am not expected to die in the next couple of years. Hence the reason for wanting to retire as early as possible. I am married with a non earning spouse and children

I obtained a CETV to see if a flexible drawdown may work better for me than taking a reduced final salary pension at 55 and was surprised at the seemingly poor value I've been offered.

The statement says I'm giving up a potential final salary of £27500 with max 2.5% growth pa for inflation in return for approx £440,000 . This calculates to me to equate to about 16x earnings which in todays climate seems not good value.

On top of this they state that the scheme is underfunded ( Its a private company I work for) and therefore they have reduced my CETV by 21% to just over £350,000 or short of 13 x . So a double whammy of not great news for me

To make £350,000 work for me to enable me to retire at 55 is something I will be working on , however, I wondered if the figures can be challenged at all. I understand the reasoning behind the reduction due to underfunding, but the initial CETV itself does not look to be good value. Even if not challenged can I request to see the calculations they used , or would this be asking them to over simplify a complex set of calculations?

Thank in advance for any advice or input

xylophone · 17 June 2017 at 9:57AM

http://www.pensionsandannuities.co.uk/The_transfer_value_calculation.htm

Your DB pension benefits protect your wife and dependent children?

If you retire at 55 on an actuarially reduced pension, would your wife return to work?

Have you and your wife obtained new state pension statements?

https://www.gov.uk/check-state-pension

dunstonh · 17 June 2017 at 10:05AM

however, I wondered if the figures can be challenged at all.

Challenge is not really a word I would use. TO challenge it, you would need to know that something is wrong. You can ask them to verify the figures if you feel they are incorrect. Tone being the main difference in the wording I suppose.

Even if not challenged can I request to see the calculations they used , or would this be asking them to over simplify a complex set of calculations?

Not sure that the information would do you any good. It is known as a best estimate calculation for good reason. Would you have the knowledge to understand the calculation?

There is an alternative method that can be used that can result in a higher CETV but this tends to be used when the employer is looking to encourage people to transfer out. it is unlikely to be used here given the figures you mention but is frequently used in those with higher transfer values.

Gilt yields have been climbing and that means that part of the assumptions will lower transfer values. We are not at peak transfer values any more (Aug 16 with a blip earlier this year).

The main hit is your reduction for underfunding. 21% is a significant amount.

Ask them to run a check again stating that you feel they are lower than anticipated but be prepared for them to verify as correct as the figures are within the range expected.

peterr_ibg · 17 June 2017 at 10:20AM

xylophone wrote: »

http://www.pensionsandannuities.co.uk/The_transfer_value_calculation.htm

Your DB pension benefits protect your wife and dependent children?

If you retire at 55 on an actuarially reduced pension, would your wife return to work?

Have you and your wife obtained new state pension statements?

https://www.gov.uk/check-state-pension

If I retired at 55 my DB pension would pay me about £9,000 per year plus a £65,000 lump sum. If I then died my wife would receive a pension of just over £6,000 per year, but that pension would end on her death.

My wife has not worked for 20 years and would not return if I were to retire

Yes, we have got the new state pension quotes. I have not included these in any of my assumptions

atush · 17 June 2017 at 10:23AM

Have you explored ill health retiral? Which generally means no reduction in your pension?

errolt1 · 17 June 2017 at 10:35AM

is the final salary of £27,500 at age of 55 , 60 or 65 ? I had a forecast salary at 55 of £16,667 and one at 60 for £23k and one at 65 for £25k.
I am 53 at the moment and my CETV is circa £300k more than the one you have been quoted.
No scheme does not have many members , maybe 8 or 9k and only a small number are actually retired.
i think it was to do with getting me to cash in and take me of the books .

peterr_ibg · 17 June 2017 at 10:47AM

atush wrote: »

Have you explored ill health retiral? Which generally means no reduction in your pension?

I have explored this and the pension rules state there is no 'enhancement' for retiring on ill health grounds. This is my frustration, Im trying to leave work due to my health , but there is always the problem that I am the only source of income in the household and although we can tighten our belts an income of £9,000 per year won't sustain us ( assuming I just take the numbers as offered for retiring at 55)

xylophone · 17 June 2017 at 10:50AM

Does your wife have a deferred pension with a former employer or a personal pension?

If not, as she appears to have no relevant earnings, had she thought of contributing £2880 net per tax year to a personal pension which would result in the addition of £720 tax relief?

peterr_ibg · 17 June 2017 at 10:51AM

errolt1 wrote: »

is the final salary of £27,500 at age of 55 , 60 or 65 ? I had a forecast salary at 55 of £16,667 and one at 60 for £23k and one at 65 for £25k.
I am 53 at the moment and my CETV is circa £300k more than the one you have been quoted.
No scheme does not have many members , maybe 8 or 9k and only a small number are actually retired.
i think it was to do with getting me to cash in and take me of the books .

£21,500 is the figure at todays value at 65 - the quote at 55 was £12,500 . The difference between the two numbers ( £21,500 vs £27,500) is the estimated growth ( CPI) between now and 2030. Our scheme is also small and there is a plan to get the fund out of deficit with input from the company, but that doesn't help me now

xylophone · 17 June 2017 at 10:53AM

I am the only source of income in the household and although we can tighten our belts an income of £9,000 per year won't sustain us

You mention that your wife hasn't worked outside the home for twenty years but is there any reason why she couldn't?

Could you work part time if you took the reduced DB pension?

peterr_ibg · 17 June 2017 at 10:59AM

xylophone wrote: »

Does your wife have a deferred pension with a former employer or a personal pension?

If not, as she appears to have no relevant earnings, had she thought of contributing £2880 net per tax year to a personal pension which would result in the addition of £720 tax relief?

No, she has no deferred or personal pension. her only income is a non means tested govt benefit that is non taxable. I guess that the scenario you give above would be something we could discuss with an IFA about the whole CETV position?

Because of both of our health situations neither of us would be able to work

Leaving Final Salary Scheme - Can you challenge CETV?

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