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

A final salary pension transfer is unlikely to be in the interests of most people. Tax treatment is dependent on individual circumstances and is subject to change. The value of pensions, investments and the income they produce can fall as well as rise, meaning you could get back less than you invested.

Could you help explain the difference between pension fund values and pension transfer values please?

Question asked by Ms J Barnes

Pension Fund Value vs Pension Transfer Value

If you have a defined contribution or money purchase pension, you’ll probably have received a pension statement with your fund value on it. There’s not much more you need to do to calculate your fund value.

As the name of these types of pension suggest, defined contribution pensions are pots filled with a finite amount of cash that you’ve been contributing to during your working life. A pension fund value is simply the amount of money in your pot, which you’ll then have to use to provide yourself with a retirement income later in life.

How you provide a pension income is up to you, thanks to the reforms enshrined in the new pension freedoms.

Calculating the pension you’ll get from money purchase scheme is far harder, as it very much depends on your circumstances and how you decide to provide yourself with a retirement income.

Getting pensions advice can help steer your decisions and provide you with the retirement you’d prefer to have.

Calculating Your Final Salary Pension Transfer Value

For a defined benefit or final salary pension, there’s no pot of money with your name on it. What you might receive instead is a cash equivalent transfer value or CETV from your provider.

A final salary pension transfer value is the sum of money your employer will offer in exchange for you leaving the pension scheme and forfeiting your right to any future income from the plan.

Today’s transfer values are high as pension funds try to incentivise people to transfer out of final salary schemes due to issues of affordability. Final salary pensions are expensive promise, compounded by low interest rates, plummeting bond yields and rising longevity.

If you haven’t received a pension transfer value, why not request a consultation with a pensions adviser and discuss your options with them? Alternatively, The Drewberry DB Pension Transfer Calculator can give you a rough idea of what your final salary pension transfer value might be.

If you still want to transfer your final salary pension, they can apply for an official CETV from your provider on your behalf without you having to lift a finger.

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