What’s the difference between a pension fund value and a pension transfer value?

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

Question asked by Ms J Barnes
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Answered by Michael Englefield

 

Pension fund value vs transfer value

How to work out a defined contribution pension fund 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.

What is my defined contribution pension pot worth?

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.

Calculating your pension transfer value

Today’s transfer values are particularly 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.

There has been a rush of people taking advantage of high pension transfer values and cashing in their final salary pensions to take advantage of greater flexibility.

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.

Pension fund value
 
Pension
 
Cash equivalent transfer value
 
Pension transfer value
 
Money purchase pension
 
Final salary pension
 
This information does not constitute financial or other professional advice. You should consult your professional adviser or contact us directly on 02084327333 should you require financial advice. It is important to ensure any insurance policy you take out is suitable for your needs.
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