In the UK, pensions come in two main types: Defined Contribution (DC) and Defined Benefit (DB) schemes. When we talk about Cash Equivalent Transfer Value (CETV) examples, we are specifically referring to Defined Benefit pensions.
Unlike DC pensions, which are based on the value of your fund and fluctuate with the market, DB pensions offer a guaranteed income based on your salary and years of service. To explore your options, obtaining your CETV is the first important step.
Watch our CEO and Independent Financial Adviser, Dominic James Murray, explain CETV and provide clear examples in this short YouTube video below.
🎥 Check out our YouTube channel for more examples and expert guidance on CETV, UK Pension Transfers, and many other financial topics.
How is CETV calculated?
Your UK pension scheme needs to specify what amount of money they are going to give as a one-off benefit instead of allowing the member to take it as an income during retirement.
When you reach retirement, you can take your pension slowly through an annuity at the normal retirement age. Your UK scheme and actuaries need to do some fairly complicated calculations to work out what that equivalent value would be.
Say you are now 50, they are going to consider the value they are going to offer you now as a transfer value instead of when you reach age 60. Keep in mind that the CETV is closely related to the gilt and index in the UK.
If the current artificially low interest rates are high, it means CETV values are high. They might go up and down a little bit, and this will also depend upon your actual scheme.
Reason to Take Your CETV
Once you've received your CETV value, you then can decide whether you wish to transfer or not. A lot of clients have come to us to ask for our advice on their decision. Generally, they ask if their CCTV is good or bad.
What makes your CETV good depends on this term called the multiples. Let's say they are offering you £10,000 at your normal retirement age and a CETV of £300,000. It means they are offering you a multiple of 30 = 30x of £10,000. If it’s £400,000 = 40x.
So, the higher this multiples, the greater chance your CETV is a good deal for you.
It is very important to remind you that the Financial Conduct Authority (FCA) are very sharp on this. The FCA Guidance Consultation 2020/2021 regulates that firms should start from the position that it should only consider a transfer to be suitable if it can clearly demonstrate that, on current evidence, the transfer is in the client’s best interests.
We need to build a rationale demonstrating why obtaining and taking your CETV now would be your best solution.
Conflict of Interest in CETV
On the one hand, clients have their CETV or pension pot in the UK. They now have a CETV which is a piece of paper to transfer their pension. This is a little bit of a dangerous thing potentially because their UK pension is very valuable. The scheme transfer destination cannot guarantee what the rate of return on that policy is going to be.
Over the past ten years, there have been numerous instances, particularly in the offshore and middle east markets, where clients have had very salesy financial advisers. They told clients it would be best for everyone to transfer their pensions abroad.
Ten years ago, there were no careful calculations required before transferring to determine whether it was in the clients’ best interests. The financial advisers could simply take a proof of address, passport, and CETV to proceed with the transfer.
That is not possible anymore, as we now have to go through a very rigorous advisory process. It has created a lot of more work on our side. The client, too, needs to be more savvy, as they need to research things and understand it more.
It can be annoying, indeed. But ultimately, when you have your decision to transfer your pension with us, you will have a full understanding that it’s going to be in your best interests.
Process of Obtaining CETV
To obtain your CETV, we need to complete the following:
- Fact finding
- Risk profile
- Letter of Authority (LoA)
After you sign the document, we will send the document to your UK pension scheme.
We will always submit your LoA because on nearly every pension transfer we’ve completed over the past five years, the UK pension scheme always misses some type of information on the CETV. For example: computation factors and UK funding deficit.
It will take 10 to 15 business days to process an LoA before they even start sending us the information. At Cameron James, we will always have an LoA with you. If you have the document already, you can send it through to us when you book in for an appointment so we can have an understanding in advance. In addition, it is very important for us to understand what you will do with your CETV.
You will find that the CETV comes in a very long document. It is not really designed for clients to fill out. Even financial advisory firms make many mistakes on these forms due to its complexity.
To proceed, first we will go through the advice process. Then we complete your Final Salary report which is a very complex document that will outline whether a transfer is in your best interests or not.
Your CETV value and the documentation that comes with it needs to be signed by you, sometimes the financial adviser, and the new scheme where the fund will go to. The new scheme is typically an International SIPP or QROPS.
How to Find the Right Pension Transfer Specialist for Your CETV
When looking for help with your CETV, it’s important to choose a financial adviser you can trust. Many advisers claim to be pension transfer specialists, but here’s what you should check before making your decision:
- Are they properly regulated?
At Cameron James, we’re proud to be FCA-regulated in the UK, and our advisers are listed on the FCA register. For clients in the US, our advisers are registered with the Securities and Exchange Commission (SEC). This regulation means you’re receiving authorised, compliant advice, and if anything goes wrong, you have a formal body to turn to. - Do they have the right qualifications?
Not every adviser is qualified to offer pension transfer advice. Make sure your adviser has completed all required certifications in your country. If an adviser is hesitant or evasive about their qualifications, that’s a warning sign to be cautious. - What do their clients say?
Check for genuine testimonials or reviews, whether on Google or in written form. At Cameron James, many of our clients are happy to connect prospective clients with firsthand experiences of our professional service, a great way to get reassurance. - Are they respected within the industry?
Experience and reputation matter. Cameron James regularly contributes to industry discussions, including commentary for the Financial Times, and our founder Dominic James Murray sits on the DB Advice Committee. These are signs that you’re working with a firm serious about pension transfers and recognised for their expertise.
Now that you understand what a CETV is and how a qualified adviser can support you, why not take the next step? Book a free, no-obligation consultation with one of our expert IFAs. We’ll provide clear, regulated advice on your CETV and guide you through the process efficiently, all at no cost to you.