What Is a Cash Equivalent Transfer Value

I’ve just had a letter from my pension scheme giving me a cash equivalent transfer value (CETV). Could you help explain the meaning of CETV in relation to my pension?

Question asked by Mr S Gupta

Pensions and Cash Equivalent Transfer Values: What Does CETV Mean?

Thanks for your question. It’s one we’re increasingly getting asked as the final salary pension transfers market grows on the back of current sky-high pension transfer valuations.

Here, we’ll try to briefly explain pension cash equivalent transfer values (CETVs) and just what CETVs mean for your pension. If you already know what a CETV is and simply want to calculate what yours could be you can use our final salary transfer value calculator.

Final Salary Pensions and CETVs

For those people with a defined benefit pension — also known as a final salary pension — a cash equivalent transfer value is the lump sum the pension scheme will offer you in exchange for you giving up any future claims to a pension from the scheme.

The CETV is a lump sum meant to be equivalent to what it would cost you to buy the same pension income that the scheme would have provided you, based on your age, health, final salary pension entitlement and other factors.

If you agree to take your employer’s pension scheme up on a CETV, you receive the sum of money on offer. This is known as a final salary pension transfer. You then use the pot of money you get to provide a retirement income instead of receiving a pension from your company.

How you secure yourself a retirement income is up to you in line with the new pension freedoms, much as if you’d been saving into a defined contribution scheme all along.

What’s the Difference Between a Pension Fund’s Value and a Pension Fund’s Transfer Value?

A cash equivalent transfer value is based on a multiple of your pension entitlement. For more on working out how much you’ll receive in retirement with your final salary pension, click here.

The CETV calculations are meant to arrive at a sum equivalent to the cash you’d need to buy the same retirement income your company would once have offered.

This is hard to work out yourself. However, a tool such as the Drewberry Final Salary Cash Equivalent Transfer Value Calculator takes the hard work out of getting an estimate of how much your final salary pension is worth.

Should I Leave My Final Salary Pension Scheme?

If you’ve got a cash equivalent transfer value through the post, the money on offer can look incredibly tempting, especially with today’s high valuations.

However, it’s important to remember what you’re giving up by transferring out of your DB pension scheme, including a guaranteed pension income for life. If you cash in your pension by agreeing to take your scheme’s CETV, you can’t change your mind.

There’s also no guarantee the cash won’t run out if you live longer than you expected or your investments — which you’ll now be in charge of — underperform.

There are also benefits to transferring out of your final salary pension, including the ability to leave your new pension pot to your family members if you die. Most defined benefit pensions die with the pensioner, or only pay a reduced widow’s pension to a surviving spouse. That’s true even if you’ve been paying into the scheme for your entire working life but die just a year after you start collecting your final salary pension.

Ultimately, a final salary pension transfer isn’t right for most people, who’ll be better off staying in the scheme and enjoying its provision of a guaranteed income for life.

If you’re thinking of taking the CETV your defined benefit pension fund is offering, it’s highly recommended you talk through your options with a pensions adviser. It’s also a regulatory requirement to do so if your final salary pension is worth more than £30,000.

Our Services & Tools

Get In Touch

Do You Need Some Help?

Our purpose is simple: Improve Your Financial Wellbeing.

We use clever technology to bring your financial future to life 🤓

See Your Financial Future
  • Find, organise and simplify your Pensions, ISAs and other investments.
  • Plan your financial future and put a strategy in place to achieve this.
  • Regularly review how you are doing to make sure you stay on track.

Pension Pot Calculator

Pension Drawdown Calculator

Final Salary Calculator

Contact Us
Head Office & Pensions and Investments
Senator House
85 Queen Victoria Street
London
EC4V 4AB
Personal Insurance & Accounts Payable
Telecom House
125-135 Preston Road
Brighton
BN1 6AF
Drewberry London Office MapDrewberry Brighton Office Map
Our Core Principles
  • 1You Come FirstWe are a client focused business who always aim to put you first.
  • 2We are ExpertsTo provide you with the best advice, we need to know our stuff!
  • 3We are HumanWe are real people with feelings who are here to help you.
  • 4We are ProfessionalProviding a 5-star service requires a professional approach to everything we do.
  • 5We are here to EducateWe don't believe in sales, we are here to educate so you can make informed decisions.
Finalist - Moneyfacts AwardsFinalist - Cover Excellence AwardsHighly Commended - Protection Review Awards
Proud member of AMII (Association of Medical Insurers & Intermediaries)Proud member of Money Advice ServiceProud member of UnbiasedProud member of BIBA (British Insurance Brokers' Association)

If you are unhappy with our service, we have a complaints procedure, details of which are available upon request. If you are unhappy with how your complaint has been dealt with, you may be able to refer your complaint to the Financial Ombudsman Service (FOS). The FOS website is www.financial-ombudsman.org.uk.

Drewberry Ltd is registered in England and Wales. Companies House No. 06675912

Drewberry Ltd registered office: Telecom House, Preston Road, Brighton, England, BN1 6AF. Telephone 0208 432 7333

Drewberry Ltd (Financial Conduct Authority No. 505473) is an Appointed Representative of Quilter Wealth Limited and Quilter Mortgage Planning

Limited, which are authorised and regulated by the Financial Conduct Authority.

Cookie Use

Drewberry™ uses cookies to offer you the best experience online. By continuing to use our website you agree to the use of cookies. If you would like to know more about cookies and how to manage them please view our privacycookie policy.