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By Trish Harding

2018 UK DB (Defined Benefit/Final Salary) Scheme Update – some CETVs (Cash Equivalent Transfer Values) begin to decline.

Two recent developments have caused a surge in transfer requests for UK DB schemes:

  • The long predicted decline in CETVs (Cash Equivalent Transfer Values) began in Q1 2017 with some UK schemes issuing reduced values for CETVs. In January 2018, one large corporate DB scheme announced that all future CETVs would reduce by 20% effective from February 2018. The concern is that many other corporate DB schemes may follow suit over the coming months/years in order to manage the growing deficit problem for DB schemes in general.
  • Growing speculation over possible future legislation extending the 2015 ban of unfunded Public Sector UK DB schemes transfers over to the Private Sector Company DB Schemes. click here for a recent article on this topic.

In addition to the above concerns, the risk of insolvency for up to 1000 UK DB Schemes has caused many people with UK DB Schemes to feel hesitant about leaving their money in the UK system:

A recent report by the UK Pensions Institute, concludes that up to 1000 DB schemes are at ‘serious’ risk of insolvency (and thus falling into the Pension Protection Fund) within the next 5 to 10 years. The UK combined DB deficit reached an all time high on August 12 2016 surpassing £1 trillion on the back of further gilt yield falls.

If you have a UK Company (DB scheme) pension, it could be at risk of insolvency or alternatively, the uncertainty of future DB scheme transfer restrictions extending from the public sector to private sector schemes – click here for details of the 2015 Public Sector DB scheme transfer ban.

The UK Pensions Institute report titled ‘The Greatest Good for the Greatest Number’, predicts that potentially hundreds of employers pension schemes will become insolvent within the next decade, causing them to have insufficient funds to pay members’ pensions in full. It challenges the ‘flawed assumption’ that eventually the majority of these sponsors will meet their pension promises in full.

Link to Full Report

Link to Summary Press Release

DB schemes can be subject to significant variations in CETVs (Cash Equivalent Transfer Values). A CETV is the lump sum equivalent value for your lifetime pension and is calculated for the purpose of transferring your pension, either into an overseas QROPS or into another UK scheme. The case study below illustrates how large fluctuations in CETVs can occur, both upward and downward, within short periods of time. We have witnessed fluctuations in CETVs of up to 20% within a 3 month period.

The above factors combined have generated a strong desire for UK migrants in Australia to secure the current values of their UK DB Schemes.

If you have a UK Company (DB Scheme), permanent residency status in Australia and a transfer value over £100k

  • aged over 55 yrs, we can assist you in transferring to Australia via a SMSF – click here for details.
  • aged under 55 yrs, we may be able to assist you – click here for details of our Secure CETV into UK SIPP

How to know if your UK company pension is a Final Salary / Defined Benefit (DB) scheme?  If your yearly pension statements show an annual annuity amount, to be paid for the rest of your life (e.g. £9,800 per year) rather than a total lump sum value, then you most likely have a DB scheme. If you’ve requested a transfer quote and received a CETV (Cash Equivalent Transfer Value) with a Guarantee Date (usually guaranteed for 90 days), then you have a DB scheme.

Fluctuations in CETVs – client case study:

CETVs (Cash Equivalent Transfer Values) can vary significantly (up or down) each time they are calculated. CETVs can be much higher or much lower than the previous calculation and this can occur within short periods of time, even as short as 3 months (as per our client case study below). Each quote is usually guaranteed for a period of 90 days from date of issue and is based upon a number of factors, including current market conditions (eg interest rates & gilt yields), benefits to be received by members and the investment strategy of the Scheme.

  • Actual Client Case Study:  One of Sterling Planner’s clients experienced large fluctuations in their CETVs for a UK Company DB Scheme over an 18 month period as follows:
  • Jun 2012   CETV  –  £1,598,753
  • May 2013  CETV  –  £1,366,464  (↓ £ 232,289 = 14.5% drop in 12 mths)
  • Aug 2013  CETV  –  £1,492,766  (↑ £ 126,302 = 9.2% increase in 3 mths)

Unsure whether your UK scheme is at risk? We can help you find out and secure the current value of your pension, keeping it safe until retirement age. 

Contact our Client Service Team on 1300 132 737.