How Is a CETV Calculated?

A CETV is the scheme actuary’s estimate of the capital sum that, invested today, should be just enough to pay the pension you would be giving up. It is not a market price you can haggle over, and it is not the “value” of your pension in any everyday sense: it is a calculation produced under assumptions agreed by the scheme’s trustees and reviewed periodically. Two people with identical pensions can receive very different transfer values simply because their schemes use different assumptions.

The calculation in three steps

Stripped to its essentials, the actuary does three things. First, they project your promised benefits: the pension you would receive from your normal retirement date, allowing for the increases the scheme guarantees and any spouse’s pension. Second, they discount those future payments back to a value today, because a pound paid in 25 years is worth less than a pound now. Third, they apply scheme-specific adjustments, such as the fund’s financial health.

The discount step is where most of the movement comes from. The actuary assumes your money could be invested to earn a return between now and retirement; the higher that assumed return, the “discount rate”, the smaller the lump sum needed today, and so the lower your CETV. Discount rates are heavily influenced by government bond (gilt) yields, which is why transfer values move with interest rates rather than with the stock market.

A simple example makes it concrete. Suppose you are promised £10,000 a year from age 65, rising with inflation, with a 50% pension for your spouse. The actuary works out what that stream of payments is likely to cost over your and your spouse’s expected lifetimes, then asks: how big a pot today, growing at the assumed discount rate, would fund it? If the discount rate is low, that pot has to be large; if the rate is high, a smaller pot will do. The answer is your CETV.

What pushes a CETV up or down

Why transfer values have fallen

Between roughly 2016 and 2021, ultra-low interest rates produced unusually generous CETVs, and multiples of 30 to 40 times the annual pension were common. As gilt yields climbed steeply from 2022, discount rates rose and transfer values fell, in many cases by a third or more. If you were quoted a figure a few years ago, today’s value could look very different. Our final-salary transfer guide explains how to read your statement.

Scheme funding can pull the other way. Where a pension scheme is in deficit (its assets are worth less than the benefits it owes) trustees may apply an “insufficiency reduction”, trimming transfer values so that members who leave do not take more than their fair share of a stretched fund. A well-funded scheme, by contrast, generally pays the full calculated value. This is one reason two people with the same pension but different employers can see markedly different offers.

Because the value depends on assumptions that change over time, your CETV is only guaranteed for three months, and you are entitled to one free calculation a year. If you want to understand whether the figure represents fair value for the benefits you would surrender, a specialist can model it against the cost of buying equivalent guaranteed income on the open market, and set it in the context of the wider pension transfer advice process.

It is worth knowing what a CETV is not. It is not the amount your pension has “earned”, nor a reward for long service, and it cannot be haggled over: the figure is set mechanically by the scheme’s assumptions, and the administrator has no discretion to improve it because you ask nicely. Nor does it usually reflect the discretionary increases some schemes have historically paid on top of their guaranteed minimum; those are, by definition, not guaranteed, so the actuary tends to exclude them. All of which means a CETV can understate the real-world value of a pension from a scheme that has a track record of treating its members well, another reason the raw number should never be read in isolation.

This is information, not personal advice, and investments can fall as well as rise. A transfer value is a starting point for analysis, not a verdict, for DB transfers of £30,000 or more, regulated advice is required by law before you can proceed. Vetted Wealth can connect you, free of charge, with an independently vetted specialist who can interpret the numbers in the context of your wider plans.

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