As a Final Salary pension holder, you are probably familiar with the term CETV or Cash Equivalent Transfer Value. It would be a measure of the value of your Defined Benefit pension scheme if you were to transfer it to another pension scheme. While you are entitled to one free CETV every 12 months, some schemes allow it once a quarter. However, what happens when you miss the first free CETV, or it is unsatisfactory, and you need a second one? In this blog, we will explore why UK pension clients should not be stingy with the second CETV fee. If you prefer a video format, we also have a discussion on this topic on our YouTube channel which you can watch below before reading this blog.
The Statutory CETV for Clients
The government mandates that pension schemes must provide one free CETV every 12 months. This measure is to ensure that clients have the necessary information to make informed decisions regarding their pension funds. However, while the first is free, the same cannot be said for the second.
What Happens in Common
In practice, it is not uncommon for clients to miss their first CETV or be dissatisfied with it. As a result, they often turn to other financial advisers for help, only to be disappointed by the charges, transparency issues, or time constraints. When they finally approach us in the final weeks, it may be too late to obtain the CETV in time. Consequently, they need to obtain a second CETV, which is where the real issue lies.
The Cost of 2nd CETV
Pension schemes in the UK have the right to charge clients for the second CETV. The fee can range anywhere from £200 to £400 plus VAT. While some clients argue that it is just a piece of paper and that they should not be charged for it, we understand the scheme's perspective. If every client had unlimited CETVs, the system would break, and obtaining a CETV would take even longer than it already does. Moreover, the fee charged for the second CETV probably does not cover the cost of using an actuary to do the calculations, which can be quite expensive.
Our Strategies for Missed 1st CETV
When clients miss their first CETV, our strategy is not to wait for the next free one. Instead, we advise them to obtain another one. We explain to them that waiting for the next free one could result in a significant drop in value, especially in a market where interest rates are increasing and CETVs are decreasing. We advise them to pay to acquire a second one to obtain the highest possible CETV value.
Why You Should Work Together With Your IFA
Working with a financial adviser is crucial when it comes to obtaining a CETV. Financial advisers have the experience and knowledge to provide clients with many tips, tricks, and hidden benefits that they may not be aware of. For example, we have been in the business for over 30,000 hours, while our clients may have only researched their DB for a few hours. Building a relationship with your financial adviser is essential in obtaining the highest possible CETV value for your pension scheme.
Don't Be Stingy, Work With Your IFA
Paying for a second CETV may feel like an avoidable expense, but in reality, it could be the key to securing a better retirement outcome. A small fee now could protect thousands of pounds in long-term value, especially in a declining CETV market.
If you've missed your first CETV or are concerned about falling transfer values, speak with Cameron James today. Our advisers handle the admin, manage the timing, and help you make informed decisions.
Book your free consultation now and take the next step towards maximising your pension value.