Why we don’t have health-based pension transfer values.


A Coleridge moment in the City

I walked into a church at the bottom of Bow Street yesterday afternoon to have a cup of coffee.

Slumped over his laptop, deep in thought, I saw a friend…

He awoke from a statistical revery and stared at me with wild surmise..

“Hold off! unhand me, grey-beard loon” ,

I cried before recognising Adrian Boulding, who has neither Grey-beard nor is a loon. 

Tapper (quoth Boulding) , tell me why transfer values are not calculated with reference to the member’s health!

“Never debate with someone cleverer than you, especially in the afternoon”

This maxim was taught me by my friend Mike Martin when I was in his tutelage at Gissings Consultancy in the early 1990s. It came in handy then

I explained to Adrian that this was not a Frequently Asked Question , and didn’t appear on the stock answer sheet I carry in my breast pocket (for chance actuarial encounters).

In truth, having come from a lunch with some good friends at Sweetings restaurant, my faculties were not as honed as they might have been some hours before.so I deferred my response and asked my esteemed actuarial colleague James Smith for a response.

Here is the email I got back later that day.

Hi Henry

The Trustees do not have any information on a member’s health.  They do not require this to be able to pay a member a pension while they are alive. 

Transfer values are based on best estimate assumptions.  So the trustees make a best estimate of life expectancy using averages. 

They could potentially ask the member for information on their health.  However, the member is not obliged to provide it.  And the member has a right to a transfer value even if they do not provide any information requested by the Trustee. 

So it is normal for Trustees to base transfer values on average life expectancy for the scheme.

 This is a crafty bit of work (as befits one of my face colleagues – available for hire at reasonable rates – speak to henry.h.tapper@firstactuarial.co.uk) 

It stops short of reminding me that I really should be better acquainted with the dynamics of actuarial advice to pension scheme trustees.

James gently reminds me that despite the headlong rush towards retirement funding based on freedom and choice, many of us receive pensions that might be considered “unfair”.

For the person expecting to live to 100 might expect a higher transfer value than the person expecting to die in his sixties.

And the person who dies in his sixties might appeal to that great ombudsman in the sky that he or she did not receive value for the money he or she paid into his or her pension.

Such a person would join a queue that might include the healthy 60 year old who had paid his taxes  , never visited a doctor and was knocked down by the Clapham Omnibus with nothing to show for his contribution to the NHS but an ambulance fare to the Morgue.

No doubt the queue would include other aggrieved souls who had also entered into social contracts which had worked for others but not for them.

I would very much hope that whatever Angel oversees the celestial courts of arbitration would give such folk short shrift.

None of us know the time of our departure , other than those who manage it themselves. We are subject to the vagaries of health and though these can increasingly be predicted with the help of genetics, we really don’t want to know how much of the rest of our lives we will spend in surgeries and hospitals.

The mystery of life, health and death

Old fashioned as it seems, I am happy to take my chance on the carousel. I am prepared to be a winner or a loser and will not curse on my death bed that I died a day before my pension cheque was due! Nor will I curse others older than me when I die for their good fortune nor fume that they will be living on the money I never received.

The mystery of insurance – life, health or longevity is that it protects you or your loved ones from the mishaps you cannot foresee.

For Adrian, contemplating the inequitably of transfer values , I suggest the whole of life insurance policy, which will pay a lump sum to those who die soonest funded from the premiums of the immortals!

The moral; pensions – like albatrosses are (usually) best left alone

‘God save thee, ancient Mariner!

From the fiends, that plague thee thus!—

Why look’st thou so?’—With my cross-bow

I shot the ALBATROSS.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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6 Responses to Why we don’t have health-based pension transfer values.

  1. Mark Meldon says:

    I have been wondering about this a lot and, of course, the answer is obvious. I can say though that there have been certain very strong “drivers” amongst my clients who have elected to take a CETV into a private arrangement (nearly always a SIPP nowadays). Health is a clear factor. Next week I’m off to see a chap who has cancer – no-one really knows if the kind of cancer he has will bring about his untimely demise, but, alas, it seems very likely. He has a wife and she has a serious heart condition. “I’m a ticking time-bomb, me!” she said. The thing is this poor chap is due a DB pension of £35,000 a year next summer, which is a nice, very nice, thing. He has been offered a CETV of £800,000, not as much as might have been expected, but the Scheme is very underfunded right now. Objectively, just running “The Numbers”, he should very probably “hold” his DB pension. Subjectively, he should “fold” his DB pension into his current DC SIPP, for quite obvious reasons.

    That brings me to driver number two – inheritability – ’nuff said on that in this context.

    The other thing is the difficult concept clients of mine have come up with, which is “control”; I won’t go on about that now but it leads me to agree that there has always been a feeling in my waters that those with DC pots, and likely those with DB ones, too, should indeed own a life policy, preferably “whole life” as a long-stop “I spent it all, but here is some cash anyway, son/daughter/grandson/granddaughter”.

    Problem is, is very expensive and for many who worry about these things, often too late to effect, like in the case of the chap above.

    On the other hand, should I be advising all of my DC clients to do two fundamental things? Firstly, set up an LPA, secondly, set up a whole life policy in trust?

    Any comments?


    • Phil Castle says:

      LPA & wills for anyone over 55 yes…
      Discussing both from age 18 onwards
      arranging a will from mid 20’s
      arranging a will if you have a business interest

      • Andrew Kemp says:

        LPAs for anyone, regardless of age (in case of accident).
        Wills for anyone, who intestacy doesn’t work for, regardless of asset base..

  2. Phil Castle says:

    My joke solution to me not saving enough for retirement (despite being positive about pensions and wanting to save more) is that as I get nearer to retirement I plan on taking up MORE extreme sports as it may save on Long term Care costs, especially bearing in mind I ended up in a tree when I did my first (and only) parachute jump and nearly drowned myself kayaking on boxing day 2008 about 1/2 mile from home!
    I think I’ll be taking up parascending off mountains or perhaps even using a wingsuit from age 65 🙂

  3. Andrew Kemp says:

    Interesting post, particularly as TVs are what I spend a significant portion of my time towards. On a similar line I’ve been thinking about why there’s no/little ‘gender equivalence’ in the majority of TV calculations..

  4. John Hutton-Attenborough says:

    It would be interesting to see if such a development would have on say a pension scheme such a Tata Steel…not that they need any more problems to deal with !

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