What Is a Cash Equivalent Transfer Value?
A Cash Equivalent Transfer Value (CETV) is the lump sum that a defined benefit (DB) pension scheme calculates as the value of your future pension benefits. It is the amount the scheme would pay out if you chose to transfer your pension to a defined contribution (DC) arrangement such as a SIPP or personal pension.
Understanding your CETV is essential if you are considering a pension transfer, going through a divorce, or simply want to know the capital value of your defined benefit pension.
How Is a CETV Calculated?
Pension scheme actuaries calculate CETVs using several factors:
- Your projected pension income — based on your accrued benefits, salary, and years of service
- Life expectancy assumptions — how long you are expected to live and receive payments
- Discount rate — based primarily on gilt yields (government bond rates)
- Inflation assumptions — how much your pension will increase each year
- Spouse/dependant benefits — the value of any benefits payable on your death
The discount rate is the most influential factor. It determines how much a pound of future income is worth today. When gilt yields are high, the discount rate is high and CETVs fall. When gilt yields are low, CETVs rise.
What Affects Your CETV?
| Factor | Effect on CETV |
|---|---|
| Gilt yields rise | CETV falls |
| Gilt yields fall | CETV rises |
| Closer to retirement | Generally CETV falls (less growth assumed) |
| Longer life expectancy | CETV rises (more years of payments) |
| Higher inflation expectations | CETV rises (larger future payments) |
| Scheme funding level | May reduce CETV if scheme is underfunded |
The CETV Multiple Explained
The CETV multiple is a quick way to assess the relative size of a transfer value. It is calculated as:
Example: A CETV of £400,000 for a pension of £20,000/year = a multiple of 20x
Typical CETV multiples in different interest rate environments:
| Period | Typical Multiple | Gilt Yield Environment |
|---|---|---|
| 2016–2021 | 25–35x | Very low gilt yields (below 1%) |
| 2022 | 20–28x | Rising gilt yields |
| 2023–2024 | 15–22x | Higher gilt yields (3.5–4.5%) |
| 2025–2026 | 14–20x | Stabilised higher yields |
When Do You Need a CETV?
There are several situations where knowing your CETV is important:
- Considering a pension transfer — the CETV is the amount you would receive in your new pension
- Divorce proceedings — CETVs are used to value pensions in financial settlements
- Retirement planning — understanding the capital value of your pension helps with overall financial planning
- Comparing options — knowing your CETV helps compare the value of staying in the DB scheme vs transferring
Why CETVs Have Fallen Since 2022
CETVs fell dramatically after 2022. Many people saw their transfer values drop by 30–50% in a relatively short period. The reason is straightforward: rising interest rates and gilt yields.
When the Bank of England raised base rates from 0.1% to over 5%, gilt yields rose sharply. Since CETVs are discounted using gilt yields, higher yields mean lower CETVs. Importantly, this does not mean your actual pension has changed — you will still receive the same guaranteed income. Only the transfer value has decreased.
CETV and Pension Transfers: Key Considerations
If you are considering transferring a DB pension using your CETV, consider:
- What you are giving up — a guaranteed income for life, inflation protection, and spouse benefits
- What you gain — flexibility, control, potential for higher growth, and different death benefits
- The advice requirement — transfers over £30,000 legally require advice from an FCA-regulated adviser
- Market conditions — CETVs fluctuate; what is available today may differ in 3 months
How to Request Your CETV
- Contact your pension scheme administrator in writing
- Request a CETV quotation (you are entitled to one free quote per year)
- The scheme must respond within 3 months (6 weeks if within 1 year of retirement)
- The quote is valid for 3 months from the guarantee date
- If you wish to proceed with a transfer, you must obtain regulated advice
Next Steps
If you want to understand your CETV or are considering a pension transfer, request a quote from your scheme and speak to a qualified pension adviser. They can help you understand whether the transfer value represents good value and whether a transfer is in your best interests.