What Is a Cash Equivalent Transfer Value (CETV)?
Nadeem Pervazis a solicitor at Edward & Amaury Solicitors, a law firm authorised and regulated by the Solicitors Regulation Authority. Content is reviewed for legal accuracy and compliance with FCA guidance and SRA conduct standards.
TL;DR — Quick Summary
- ▸A CETV is the lump sum your defined benefit pension scheme offers if you transfer out — it is the scheme's estimate of the capital value of the benefits you give up.
- ▸A high CETV is not a reason to transfer. It reflects the cost of replicating DB benefits, not a "profit" on the transfer.
- ▸The true value of a DB pension — what it would cost to replace in the open market — is almost always higher than the CETV.
- ▸This gap between the CETV paid and the cost of replacing what you gave up is a key driver of compensation in DB transfer mis-selling claims.
- ▸CETVs are valid for three months and can fluctuate significantly with market conditions.
Understanding the cash equivalent transfer value (CETV) is essential for anyone who was advised to transfer out of a defined benefit pension — and for anyone who wants to understand why their compensation claim may be substantial. The CETV is the lump sum the scheme paid when you transferred out. But it is rarely the same as the true value of what you gave up.
Quick Answer
A CETV is the transfer value your DB scheme paid when you left it. It is not what your DB pension was "worth" — the true cost of replacing the guaranteed income, inflation-linking and spousal pension is usually much higher. This gap is what drives large compensation figures in DB transfer claims.
How a CETV Is Calculated
DB scheme actuaries calculate the CETV using a set of assumptions about:
- Future investment returns — the discount rate applied to future liabilities
- Inflation — the rate at which benefits will increase over time
- Life expectancy — how long, on average, the scheme expects to pay benefits
- Mortality rates — the likelihood of the member surviving to various ages
Because these assumptions are sensitive to market conditions — particularly gilt yields and inflation expectations — CETVs can vary considerably from one quarter to the next. CETVs rose dramatically in the post-2008 low-interest-rate environment, which is one reason why many advisers were able to cite large CETVs as a reason to transfer.
Why a High CETV Does Not Mean You Should Transfer
A High CETV Multiple Is Not a Reason to Transfer
Many advisers presented high CETV multiples — "your transfer value is 40 times your annual pension" — as evidence that a transfer was financially attractive. This framing was misleading. A high multiple simply means it is expensive to replicate the scheme benefits. It does not mean the transfer value will generate equivalent benefits once invested.
CETV vs True Replacement Value — the Gap That Drives Compensation
The central issue in DB transfer mis-selling claims is the gap between:
- The CETV — the lump sum the scheme paid out, and
- The comparator value — the cost of purchasing an equivalent guaranteed income in the open market.
The comparator value is almost always higher than the CETV. This means that transferring out typically means accepting a sum that is insufficient to replicate what you gave up. The FCA's redress methodology (PS22/13) uses this gap as the basis for compensation calculations.
Simple Illustration
Imagine a DB pension worth £10,000 per year (index-linked, with a spouse's pension). The scheme offers a CETV of £250,000. But to purchase an equivalent annuity today — inflation-linked, with spousal benefits — costs £350,000. The CETV is £100,000 short of what you need to replicate what you gave up. That gap is the starting point for a compensation calculation.
This is a simplified illustration only and does not represent any specific case or outcome.
See our detailed guide on how DB pension transfer redress is calculated.