Retirement planning isn’t complete without understanding your pension, a key part of your financial security after you stop working. If you have a Final Salary Pension through your employer, it is crucial to understand how your pension income is calculated. It directly affects your retirement plans. We will explain how to calculate your Final Salary Pension, focusing on the Cash Equivalent Transfer Value (CETV).
We’ll also highlight why consulting an Independent Financial Adviser (IFA) is important to make well-informed decisions about your CETV.
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What is a CETV Pension?
A CETV is an essential consideration when reviewing your retirement planning options. Keep in mind, however, that it is only applicable if you have a Defined Benefit/Final Salary Pension Scheme. It is the calculated transfer value of your Final Salary pension, based on expected future cash flows, and signifies the amount your Scheme would pay you if you wished to transfer your guaranteed income stream into another pension, especially one that facilitates flexible benefits.
It’s essential to note that your CETV is not the same as the amount in your pension fund, as there is no pension fund, per se, just a promised set of future payments. Your pension scheme Trustee offers this amount if you wish to transfer out to another arrangement.
You have the statutory right to request a free CETV from your UK Pension Scheme Provider once every 12 months. If you request a second CETV within 12 months, you may be subject to a fee between £200 and £250.
It’s important to carefully consider the potential benefits and drawbacks of transferring your pension, particularly given the current economic climate. While transferring your CETV can provide greater flexibility and control over your retirement savings, it also comes with additional and varied risks.
How To Calculate the Annual Pension?
Calculating your CETV can be a complex process. As such, there are typically two methods to calculate a CETV:
The first and most common method estimates the cost of providing the benefits you're entitled to, typically as a guaranteed, escalating income for life, and calculates the value specific to each individual, based on a set of prescribed actuarial assumptions, such as: life expectancy, expected inflation, bond yields etc.
The other version is similar, but is slightly less tailored, and more generic multiples are used based on an individuals age and gender etc. However, both approaches more often than not result in similar figures.
If you are considering transferring out of your defined benefit pension scheme, your CETV is the amount that your pension scheme will provide you with to extinguish any benefits you have in your current scheme. Those benefits are the right to a guaranteed pension income.
Your Final Salary pension annual payment is calculated by reference to three components:
- The first is your “final” salary you received prior to becoming a deferred member of the scheme, if applicable. There are other similar pension schemes called “CARE” schemes, Career Average Revalued Earnings, which are based on an average salary over a certain period of employment.
- The Second factor is your scheme’s accrual rate, typically set at either 1/60th or 1/80th. This is the amount of your final salary that you accrue (build up) each year.
- The Third is your period of service, which is the number of years you have worked for the company and been an active member of the Scheme. Your length of service determines what percentage of the total pension benefits you're entitled to.
Here is an example of calculating the annual pension income. Let’s consider the case of Alexa. She is in a Defined Benefit pension scheme with a final salary of £33,000 per year at the date of leaving her scheme. Alexa worked for her employer and was an active member of the scheme for 20 years, with an accrual rate of 1/60th.
To calculate Alexa’s CETV, we can use the following formula:
Final Salary x Accrual Rate x Years of Service
£33,000 x 1/60 x 20 = £11,000 per annum
This means that annually, Alexa’s scheme would provide a guaranteed pension income of £11,000 for the rest of her life.
Now, it is important to note that this is from the normal retirement age, which is often 65 or 60. If you were to retire and take benefits earlier than this, than typically benefits would be reduced
The team of Pension Specialists at Cameron James can help you by providing expert advice on your Final Salary pension scheme, so book your consultation today if you would like to discuss your situation and your options.
Here is an example of calculating CETVs. Let’s consider the case of Alexa. She is in a Defined Benefit pension scheme with a final salary of £33,000 per year. Alexa has worked in the scheme for 20 years with an accrual rate of 60. To calculate Alexa’s CETV, we can use the following formula:
£33,000 x 20 / 60 = £11,000
This means that annually, Alexa’s scheme would provide a guaranteed pension income of £11,000 for the rest of her life.
How To Calculate the CETV?
Calculating your CETV can be a complex process. As such, there are typically two methods to calculate a CETV:
The first and most common method estimates the cost of providing the benefits you're entitled to, typically as a guaranteed, escalating income for life, and calculates the value specific to each individual, based on a set of prescribed actuarial assumptions, such as: life expectancy, expected inflation, bond yields etc.
The other version is similar, but is slightly less tailored, and more generic multiples are used based on an individuals age and gender etc. However, both approaches more often than not result in similar figures.
You are not going to be able to calculate the CETV using complex calculations, as those require extensive knowledge and actuarial training, so the best way to get an idea for what you might expect your CETV to be is to use the second approach, a valuation multiple, and base it on the general levels being reported at that point in time.
CETV’s are very heavily connected to Long Term UK Gilt yields, which have risen dramatically since the beginning of 2022.
For reference, right now at the end of 2025, the typical multiple of someone with a final salary pension with a normal retirement age of 65, is c.18-22, but there are some schemes that will be more or less than this.
If we use the Alexa example above, if Alexa has a promised Guaranteed Income Stream of £11,000 per annum from age 65, then a CETV on average would be around £198,000 – £242,000, but will be scheme dependent. Also, those who are younger and further away from retirement will have a lower multiple due to the time value of money.
How to Find Out Your Pension Scheme’s CETV Value?
While understanding and calculating the CETV can be complex, there are ways to get a quick snapshot of its value. One useful option with some schemes is to visit your pension scheme provider’s online portal and fill out the relevant form. This will generally give you an online valuation that is close to the actual CETV calculation.
However, the online calculator is not a definitive answer and is quite general. It may not take into account specific factors unique to your scheme.
Another option is to request your CETV directly from your UK Pension Scheme and obtain the official valuation. You have a statutory right to request your CETV once every 12 months, and if you decide to transfer out your DB pension scheme, you have three months to complete the advice process. If you do not proceed with the transfer, you can obtain a second CETV for a fee, as previously stated, if you want another one within a 12-month period.
Get the Best Out of Your CETV
At Cameron James, our team of FCA-regulated IFA's are dedicated to helping you fully understand the DB Advice Process, which we help facilitate with the use of an independent third party Pension Transfer Specialist.Don’t leave your retirement to chance. Take control now by booking a free, no-obligation consultation with one of our experienced pension specialists. Contact Cameron James today to start planning a secure and comfortable retirement with expert guidance every step of the way.