A CETV (Cash Equivalent Transfer Value) is the lump-sum value placed on your defined-benefit pension if you choose to transfer out. It's calculated as the present value of all your projected future DB pension payments, discounted at gilt-based rates. Critical insight: CETVs are extremely sensitive to interest rates. When gilt yields rise (as in 2022-2024), CETVs fall sharply — sometimes 30-40%. When rates fall, CETVs rise. For a 55-year-old with a £20k/year DB pension at age 65, a typical CETV in 2020 might have been £700,000; in 2024 with higher rates, possibly £400,000. The same pension promise; very different transfer values. CETV transfers over £30,000 require FCA-regulated advice — this is not optional.
What CETV represents
Your DB pension scheme makes you a future promise: "Pay you £X per year, indexed at Y, starting at age 65, for the rest of your life, with Z% spousal continuation."
The CETV is the actuary's estimate of how much money the scheme would need TODAY to honour that promise. Mathematically:
CETV ≈ Σ [Expected pension payment in year t × Mortality probability × Inflation indexation]
/ (1 + discount rate)t
Components:
Expected pension payment — your accrued benefit at the calculation date
Mortality probability — actuary-modelled survival probability per year
Inflation indexation — scheme rules (RPI / CPI / fixed / cap)
Discount rate — typically based on gilt yields + margin
Result: a single £ figure representing the present value of all expected
future payments.
Why CETVs swing dramatically with interest rates
The discount rate is the killer variable. A 1% rise in the discount rate can reduce the CETV by 15-25% (more for younger members, because more years of cashflows to discount).
| Age | Accrued DB pension (£/year at 65) | CETV at 1% gilt yield | CETV at 4% gilt yield | Change |
|---|---|---|---|---|
| 40 | £20,000 | ~£1,200,000 | ~£550,000 | −54% |
| 55 | £20,000 | ~£700,000 | ~£450,000 | −36% |
| 62 | £20,000 | ~£500,000 | ~£400,000 | −20% |
This explains why CETVs collapsed in 2022-2024 as gilt yields rose from 1% to 4%. The pension promise is the same; the actuary's discounted present value is much lower.
The CETV multiplier — quick mental model
Members often think in "multiplier" terms: CETV ÷ annual pension at retirement. Recent ranges:
- 2015-2020 (low rates): typical CETV multiplier 30-45×.
- 2022-2024 (high rates): typical CETV multiplier 15-25×.
- 2026 (current rates ~4%): typical CETV multiplier 18-25× for 50-year-old.
The multiplier is higher for younger members (more years of cashflows to discount), lower for older.
What's in the calculation
The actuary's specific inputs:
- Accrued benefit: your DB pension as calculated at the CETV calculation date (years of service × accrual rate × final salary or similar formula).
- Retirement age: when the pension starts paying — typically 60, 65, or "Normal Retirement Age" defined in the scheme.
- Inflation indexation: RPI, CPI, fixed%, or capped. Affects projected future payment values.
- Spousal continuation: what survivor benefit applies (typically 50% to spouse).
- Death-before-retirement benefit: what happens if you die before drawing.
- Pre-retirement increases: how the accrued benefit grows between leaving the scheme and retirement (deferred revaluation).
- Mortality assumptions: actuarial life-expectancy tables for the scheme's population.
- Discount rate: typically gilt yield + risk margin.
How to request your CETV
- Request statement: write to your scheme administrator (the company or trust running the pension). Free statement once per 12 months by statutory right.
- Specify request type: "Cash Equivalent Transfer Value." Note the calculation date.
- Receive within 3 months: statutory deadline. Practical timing usually 6-12 weeks.
- Statement is guaranteed for 3 months: CETV "locked in" for 3 months from calculation date. After that, you'd need a new calculation.
- For transfers over £30,000: regulatory requirement to obtain FCA-regulated advice from a Pension Transfer Specialist. See the DB transfer decision guide.
Worked example — typical UK private-sector DB scheme
55-year-old, 25 years' service, final salary £45,000
| Accrued DB pension at retirement (65): 25 years × 1/60 × £45,000 | £18,750/year |
| Inflation indexation: CPI capped at 5% in deferment, CPI capped at 2.5% in payment | |
| Spouse benefit: 50% on death of member | |
| Tax-free cash on retirement: commutation factor 12:1 | Optional |
| CETV calculation (May 2026, gilt yield ~4.2%) | ~£420,000 |
| Implied multiplier: £420,000 / £18,750 | 22.4× |
For this member, the CETV is £420,000. They could transfer this to a SIPP and have £420k of pension capital to invest. The decision: is £420k of personal pension wealth better than £18,750/year of guaranteed inflation-protected income for life?
The CETV "fair value" check
Is the CETV being offered fair? Not always. To test:
- Calculate the implied multiplier: CETV / annual pension at retirement.
- Compare to scheme-funding actuarial valuation: the scheme's own buyout valuation (what an insurer would charge to take over the pension).
- Compare to annuity rates: what would £CETV buy in annuity at age 65? Usually 75-90% of the DB pension.
If your CETV implies an annuity at retirement of only 60% of your DB pension, you're getting poor value. Discuss with the scheme administrator.
Common CETV mistakes
- Comparing CETVs taken at different times. A 2020 CETV vs a 2024 CETV reflects different rate environments, not different scheme generosity.
- Treating CETV as "what the scheme owes you." No — CETV is the price the scheme is willing to pay to discharge its obligation. The actual obligation (your pension promise) is unchanged.
- Ignoring the 3-month deadline. CETV calculations are guaranteed for 3 months only. Decisions take time — start early.
- Forgetting the post-2027 IHT-on-pensions reform. A transferred DB becomes a DC pot — subject to the 2027 IHT reform.
Sources and methodology
CETV calculation methodology follows Pension Schemes Act 1993 and Pensions Regulator guidance. Actuarial models reflect standard industry practice (the "Pension Protection Fund Section 179 valuation" methodology being one published reference). This page is educational only. CETV transfer decisions involve regulated investment advice — speak to an FCA-authorised Pension Transfer Specialist.
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