If you’re considering transferring away from a Defined Benefit (final salary) pension, you’ll need to request a cash equivalent transfer value (CETV) to help you find out whether or not you would be better off in or out of the scheme.
CETVs are calculated by the scheme actuary and will vary but the main factors that the CETV is based on are:
- How far away you are from retirement
- Your salary
- Your service with the company
- Any rules about how your pension will increase, and any other benefits from the scheme
- Assumptions on future annuity/interest rates
- The value of gilt yields (these are bonds issued by the government, and many DB schemes are heavily invested in these assets)
Remember: A CETV is the potential cash value of your scheme benefits, which may fluctuate during your process of transferring out of the scheme.
If your CETV is above £30,000, then you will not be able to transfer your DB pension without qualified financial advice. The Government has made this a legal requirement, to ensure that retirees are not losing out in the long run. Your adviser will consider the implications of a transfer, and will offer their recommendation about whether a transfer is suitable for you.
Understanding the risks
Anyone considering transferring out of a DB Scheme should appreciate that once a transfer has taken place the decision is irrevocable and that the valuable benefits from the scheme are lost. Your adviser will take you through a rigorous process which will clearly highlight the risks and benefits of transferring — and advise if transferring is right for you.