Transfer heaven or transfer hell?


Saturday kitchen’s binary dilemma informs on the “stampede” for a defined benefit transfer value (CETV).

Those who still have this option have been offered as much as 40 times the prospective pension as cash payable to an approved pension. With critical yields (needed to secure certification) at all-time lows, pension freedom beckons.

But transfer heaven can turn to transfer hell as transferors negotiate with advisers for the certificate to unlock the gates. IFAs are reporting up to four month queues to use a TVAS (transfer value analysis systems). With most CETV quotes expiring within 3 months, many transferors are having to pay for a new quote only to find CETVs have fallen by as much as 15% from September highs.

The volatility of CETVs is a product of the discount rates by which they are calculated. If the discount rate is set with reference to gilts then the economic thunderclaps of Brexit, QE and Trump-enomics are buffeting Transfer Values from heaven to hell.

But not all discount rates are gilt related, the Pensions Regulator calls on actuaries to use a best estimate formulation based on the scheme’s disposition of assets. Schemes that have growth assets have higher discount rates and lower transfer values. CETVs from these schemes are less sensitive to seismic shifts in gilt yields, CETV from such schemes are neither in heaven or hell but in a penumbrous purgatory!

But let me not stray into further arguments about the heaven or hell of gilts plus valuations! Let’s think about the “real world” impact of CETV volatility – volatility driven by what seem arbitrary changes in the gilt yield curve.

Imagine your divorce settlement is finalised this year and you exchange an earmarked pension of £10,000 for property assets of £400,000. You get to keep your family house and your ex-wife gets a £10k DB pension. Next year your house is worth £450,000 and the DB CETV has fallen from heaven to hell and is now valued at £300,000. Has anyone been proven to have mis-sold a CETV to a spouse (yet)?

And what about that CETV analysis that was done in September on a quote of £400k and became worthless in December? What of the heavenly prospect dashed by a hellish change in gilt yields? The IFA fee remains payable but the computer that once said “yes” now says “no”. The CETV has fallen, the critical yield has risen, cue the class action lawyer.

Those who can afford to read the FT will have read Ros Altmann crowing that she had “cashed in” not one but two DB pensions in the autumn – presumably she’s in “pension heaven”. It seems contradictory that someone who has advocated prudent saving for a pension and damned the feckless LISA should be promoting the management of retirement income from within a SIPP (or even from a bank account!)

That SIPP statement showing a £400k balance might sound heavenly, but many have encountered the perils of pension scams, pounds cost ravaging and fund-platform-advisory costs. Add to operational perils the unexpected liabilities of living too long and geriatric care and the tableau of pension heaven is reversed for one of later-life financial destitution.

There is a “transfer now while quotes last stampede” on at the moment. The FT’s word “stampede” sounds sensational but administrators report it as accurate. Almost as worrying as the stampede for quotes is their low take-up rate.

At a time when transferors are dreaming of pension heaven, the fear’s that pensions hell is gaping. As St Peter, (in IFA garb), fiddles with his keys, the celestial apparition disappears behind the clouds.

This article first appeared in Professional Pensions


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Transfer heaven or transfer hell?

  1. Mark Meldon says:

    Thoughtful, as usual. I found your point about the take-up rate very interesting as my experience over the last 2-3 years would indicate a take-up rate of around 25% of the small number of CETVs I have looked at. I try my very best to be “neutral” when advising in the problematic area, even though it is clearly in my long-term interest that clients do indeed transfer, I suppose. I do get paid for saying “no”, though, even if the client initially says he/she is adamant about the transfer.

    I think that the main problem has yet to appear as far as those who have taken their CETV is concerned (almost regardless as to why they have done so). We have likely reached the tail-end of a 20-year + “bull run” in bonds, equities seemingly defy gravity, “alternatives”, such as the on-trend “infrastructure” often can only be bought at a premium, returns on cash are piffling. I have been around long enough to remember bear markets and what goes around comes around eventually.

    One day, who knows when, returns will fall, perhaps very significantly and capital values might plunge. If or when that happens, how long might it take for things to recover? Will complaints ensue? Although in my personal experience those looking at their DB arrangements always have other sources of retirement income or “wealth”, these, too, can be severely impacted when markets take a tumble.

    What then? Hopefully not the dreaded equity release!

    We shall see what those said “hello” to their CETV and waved “goodbye” to their DB Scheme feel and do when the bear returns (sorry about the rubbish Soft Cell reference!).


  2. john mather says:

    Given the situation outlined why would any IFA offer advice? the risk reward is just commercial suicide there is no miss selling just a flawed compensation system skewed in favour of the consumer.

    Let the advice come from the State sponsored and subsidised Quangos.The IFA is not obligated to offer advice to a “walk in” Let the trustees offer their members advice NOT guidance The public don’t appreciate the difference or they have selective amnesia

    The safer area to give advice takes into account the life time allowance cliff edge cases only or poor mortality issues with large pot and mortality likely to be sub 75

    The impact of the lack of Statesmen and the stupidity of the random walk through trade agreements adds the further dimensions of jurisdiction and currency. Even residence and domicile

    (We are doing well with the NZ $) Inflation will approach 5% on an RPI basis not CPI so our RPI covered bonds will continue to prosper

    The peak of the baby boomers was 1947 so this is the year of the 70 year old

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