Cash Equivalent Transfer Value (CETV) Examples
In the UK, there are two major types of pension pot: Defined Contribution (DC) and Defined Benefit (DB) scheme. When we are talking about a CETV, it is only related to the DB one.
The DC does not have a CETV because with it, you will have your fund value.If your fund value is £250,000, its transfer value will remain the same. The only way this fund could move up or move down is because of market performance or charges from your existing UK scheme.
For example, if it is worth £250,000 and the market continues to grow, in a year’s time it might be worth £275,000 or £300,000.
On the other hand, if you want to consider transferring a Defined Benefit pension, obtaining your CETV is going to be one of the first things you need to do.
Watch the explanation of CETV and its example by our CEO and Independent Financial Advisor, Dominic James Murray, in one of our YouTube video below.
//youtu.be/wtN2UJ9C8Ps
Watch Other UK Pension Videos in Our YouTube Channel!
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.
It means when you reach your retirement, you can take your pension slowly through an annuity at the normal retirement age (typically 65 in the UK). 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 toask 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 your CETV and taking it now would be a better solution for you.
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 advicsory 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.
The Best UK Pension Transfer Specialist Can Help You With Your CETV
If you search online, you are likely to find lots of people claiming to be pension transfer specialists. These are the things you need to look for in your financial adviser:
1. Are they correctly regulated?
At Cameron James, for example, in addition to being an FCA-regulated company, our financial advisers are also on the FCA register. In the US, our financial advisers are on the Securities and Exchange Commission (SEC) register.
This is extremely important because it means that you’re taking regulated advice and if anything goes wrong, you can go to an official financial body with your complaint.
2. Are they qualified?
Is your financial adviser even qualified to give you advice? Have they completed the requirements regulated in the UK and/or the US? If you ask a financial adviser for information on their qualifications and they get a little bit uptight, or start giving you reasons why it doesn’t matter, it may indicate a red flag.
3. How are the testimonials for the service?
The testimonials may be written in a pdf form or on Google reviews. However, it will be best to ask them if you can reach out to one of their clients that live in the same area as you. This happens very often at Cameron James. Our clients are more than happy to help potential clients because of the professional service they received from us.
4. Is the company highly regarded in the industry?
How long have they been around for? How long do they look like they’re going to be in the industry for? At Cameron James, we give commentary to Financial Times on all DB pension matters. Our co-founder Dominic James Murray sits on the DB Advice Committee. These are indications to our clients that we are serious about this and well regarded in the industry.
Now that you have understood what is a CETV and how your IFA can help with your CETV, hit the button below to get a free initial consultation with one of our IFAs and start to get regulated advice about your CETV and how to obtain them efficiently. All initial consultation with us is always free of charge.
