What is a Cash Equivalent Transfer Value (CETV) for a defined benefit pension?

Full answer

A Cash Equivalent Transfer Value (CETV) is the amount a defined benefit (DB) pension scheme offers if you give up your guaranteed income rights and transfer the value to a personal pension or SIPP. **How is a CETV calculated?** The scheme actuary calculates the CETV based on: - Your projected annual pension at retirement - Your age and expected retirement date - Current gilt yields and discount rates (lower gilt yields = higher CETVs) - Scheme-specific assumptions about longevity and inflation linking CETVs are commonly expressed as a multiple of the annual pension -- historically 20x to 35x, though rising interest rates since 2022 have pushed many multiples lower, to 15x--25x. **Worked example** Suppose you have a DB pension that will pay £8,000/year at age 65. Your scheme offers a CETV of £200,000 (a 25x multiple). If you transfer: - You give up the guaranteed £8,000/year income (inflation-linked) - You receive £200,000 in a personal pension - You are now responsible for investing and generating your own retirement income **The advice requirement** If your CETV is £30,000 or more, you are legally required to take regulated financial advice from a pension transfer specialist before transferring. This is a legal safeguard introduced because transferring out of DB pensions is often not in the member's best interests. **CETV validity** A CETV quotation is typically valid for 3 months. You can request one free CETV quotation per year. **Should you transfer?** DB pensions provide guaranteed income, inflation protection, and a spouse's pension -- these are valuable. The FCA has noted that transfers are rarely in members' best interests. However for those with serious health conditions, no dependants, or very large pots, transferring may sometimes be appropriate. **Tax on CETV** The transfer itself is not a taxable event, as long as it goes into a registered pension scheme.

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