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More generous transfer values from defined benefit schemes
The Actuarial Profession, the organisation that represents UK actuaries, announced a change in the way in which pension trustees calculate transfer values from final salary schemes. Their proposals, which could come into force before the end of the year, could see the transfer values from some final salary schemes increase dramatically, potentially encouraging employees to forsake their employers' retirement income promises in return for a tidy lump sum. It will also have a big impact potentially on divorce splits from these schemes.
At the moment trustees have wide freedoms in the growth assumptions that they can use when it comes to calculating a transfer value. These growth assumptions are rarely disclosed to pension scheme members but in some cases it appears employers are using ambitious future annual investment growth assumptions of 10 per cent or more. This is significant as the higher the growth rate assumption adopted, the lower the transfer value. This value is called the ‘Cash Equivalent Transfer Value or CETV’.
In future, the actuaries want employers to assume a much lower return figure that will be based on bond yields. So, instead of 9 or 10 per cent, some companies will have to cut their growth assumptions to around 5 or 6 per cent, although trustees will maintain some freedom to hike these figures if the financial strength of their employer is poor or the funding level of their pension scheme is low. Nevertheless, this change in numbers could have a major impact on transfer values, particularly for younger employees. | 
