Massive changes in CETV value

Thrugelmir wrote: »

Schemes all have different levels of funding. Some in surplus , others in deficit. Also differing levels of liability in terms of deferred membership. Very to simplistic to assume that there should a standard calculation.

Thanks all for the info, which I understand after spending 30+ years in industry supporting employee pay and benefits including co pensions and expatriate benefits. Normally, you can check a pension quotation via the scheme booklet/rules but for CETV, the calculation used does not appear to be widely available. For me, the real issue is one of transparency about how the CETV quotations are calculated, if the quotation included an approved standard calculation, which may include some or all the elements that you mention, then this would address any concerns regarding how can I be confident that my CETV quotation is correct? I read on this forum where an IFA was able to prove to pension actuaries that a quotation for his client was circa 5% short. I suspect the majority of IFA’s will not check the calculations but the task of understanding and having confidence in the CETV would be made easier if some form of explanation /calculation were included.

In my own case, I secured 4 quotations over the space of 20 months. For quotations 1-3 the online CETV figure V the actual CETV quotation received varied by 2%, when I questioned this I was informed it was policy to reduce down quotations by 2% as this was the margin of error on the online quotation. However my last/final quotation was reduced by less than £300 on £937k CETV, so definitely not 2%. Of course, I am not going to complain but there is either an inconsistency or the rules changed – with greater transparency I would be better able to understand.

On this forum, I don’t think we can resolve the issue of transparency. The fact that forum members are prepared to share their quotations or ask questions about their CETV is great as this tells me that the method of calculation seems to vary from pension scheme to pension scheme.

Ianthy - a couple of points for you (and others).


The calculations for a CETV are an order of magnitude more complex than redundancy or pension calculations. Trust me, even if you were given the full calculations you would find it very difficult to spot an error in them. The people that set the calculation methodology have been through a gruelling set of exams on complex statistical maths and it takes an average of 8 years (after graduating from university) to qualify. From experience, I can guarantee that the vast majority of IFAs wouldn't be able to understand them either.


What would be useful to IFAs (and possibly members) is to understand the financial and demographic assumptions used to calculate the CETVs. There's no statutory requirement to disclose these, but most pension schemes will on request. I'll agree with you that I think this should be available.


Your hopes for a standard calculation I'm afraid just won't work, because the benefits provided by every scheme are slightly different. Similarly, the assumptions used by law have to reflect the expected investment returns, retirement patterns and life expectancy of that scheme. As an extreme example, the expected cost of providing a pension in a scheme for an asbestos disposal company where the scheme is invested in equities is vastly different to a scheme for personal trainers invested in bonds.


What you do have is a standard legal requirement (at least equal to the expected cost), and a standard set of standards / professional guidance on the detailed aspects of the calculations. You are then relying on the fact that the Trustees have appointed a qualified and heavily regulated professional to calculate the CETVs accurately, and these calculation routines have gone through a high level of checking. Doesn't mean mistakes don't happen, but they are rare.


Its also worth noting there is a legal minimum that has to be provided, but there is no legal maximum. There are several reasons why a scheme would want to pay more than the legally required amount, and while that can lead to inconsistencies between schemes, there's no legal or moral problem with that.