A cash equivalent transfer value, or CETV, is the lump sum a defined benefit pension scheme will pay today to buy out your future pension rights in one go. It’s the scheme actuary’s estimate of what it would cost right now to fund every guaranteed payment you were due to receive in retirement, converted into a single figure you can move into a defined contribution arrangement such as a SIPP. Taking it means swapping a promised income for life for a pot you control, invest, and can leave to beneficiaries.
How the Figure Is Calculated
Your CETV is not the sum of contributions paid in over the years. It’s a present-value calculation of every future pension payment the scheme expects to make to you, discounted back to today using assumptions the trustees set.1The Pensions Regulator. Transfer Values Those assumptions include your age, life expectancy, projected inflation, and the scheme’s own funding position. A younger member with more years of expected income ahead usually sees a bigger figure than someone close to retirement.
The single biggest driver is the yield on long-dated UK government bonds. Schemes price future liabilities against the 30-year gilt rate, and the relationship is inverse: when yields fall, guaranteeing an income becomes more expensive and CETVs rise; when yields climb, funding gets cheaper and CETVs shrink. The sharp rise in gilt yields since 2021 pulled many transfer values down well below the figures members had seen quoted a few years earlier.
Each scheme layers on its own adjustments. An underfunded scheme may reduce transfer values to protect remaining members; a well-funded one may be more generous. Benefit rules, early retirement provisions, and inflation indexing all feed the number. Because the inputs shift constantly, a CETV is a snapshot tied to a specific date.
How to Get Your CETV Quoted
You formally request a Statement of Entitlement from your scheme administrator, whose contact details are on your annual benefit statement or original enrolment paperwork. You’ll need your National Insurance number and details of the receiving pension arrangement.
The statement sets out the transfer amount, the valuation date, and a breakdown of the pension components being valued. It also spells out what you would give up, including any spouse’s or dependant’s pension and death-in-service cover. Read it carefully rather than fixing on the headline figure alone.
You’re entitled to one formal CETV quotation every twelve months at no cost. Additional quotes within the same year may attract an administration fee.
The Three-Month Guarantee
Once issued, the quoted transfer value is guaranteed for three months from the guarantee date on the document. During that window, market movements won’t change the amount offered.2The Pensions Ombudsman. CAS-30511-T8M5 Ombudsman’s Determination If you don’t submit an application to transfer within the three months, the quote expires and the scheme recalculates from current conditions. Given how sensitive the number is to gilt yields, the new figure could be noticeably higher or lower.
Once you do submit an application within the guarantee window, the scheme typically has a further three months to complete the payment.2The Pensions Ombudsman. CAS-30511-T8M5 Ombudsman’s Determination
The £30,000 Advice Requirement
If your CETV exceeds £30,000, you are legally required to take advice from an independent financial adviser before the scheme will process the transfer.3FCA. Pension Transfer Advice: What to Expect The requirement sits in Section 48 of the Pension Schemes Act 2015, which prevents trustees from releasing the funds until they have confirmation that regulated advice has been given.4Legislation.gov.uk. Pension Schemes Act 2015, Section 48 The adviser must hold specific FCA permissions for pension transfer work, which you can verify on the FCA’s Financial Services Register.5FCA. Advice Checker: Defined Benefit Pension Transfers
The adviser assesses whether giving up a guaranteed income actually fits your circumstances, looking at your health, other income sources, attitude to investment risk, and what you need the money to do. The trustees need a signed declaration from the adviser, including their regulatory reference number, before releasing funds. Without that paperwork, the transfer is blocked.
Since October 2020, the FCA has banned contingent charging. An adviser cannot charge a fee that varies depending on whether they recommend the transfer or whether you go ahead.6FCA. COBS 19.1B Ban on Contingent Charging for Pension Transfers You pay the same either way. Narrow exceptions apply for people in serious ill health or genuine financial hardship who cannot afford the fee upfront. Fees for pension transfer work typically run between 1% and 2% of the transfer value, though fixed-fee arrangements exist. On a large CETV, that can reach several thousand pounds.
What You Give Up
A CETV transfer is irreversible. Once the money leaves the defined benefit scheme, three things go with it that are hard to replicate on the open market.
- A guaranteed income for life. A defined benefit pension pays a set amount every month regardless of markets or how long you live. In a defined contribution pot, income depends on investment returns and drawdown pace, and there is a real risk of running out.
- Built-in inflation protection. Most defined benefit schemes increase your pension annually, either in line with inflation or at a fixed rate. A transferred pot has no automatic protection against rising prices unless you buy it, which is expensive.
- Automatic dependant’s benefits. Defined benefit schemes usually pay a proportion of your pension to a surviving spouse or partner. Transfer, and those automatic survivor benefits fall away. You can nominate beneficiaries for whatever remains in the pot, but the structure and certainty differ.
The flexibility of a defined contribution arrangement appeals to people who want to vary their income, take larger lump sums, or leave a pot to children who aren’t dependants. The trade-off is genuine. A CETV can look impressive as a headline yet struggle to match the lifetime income the scheme would have paid. The guaranteed scheme is longevity insurance no financial product perfectly replaces.
Who Cannot Transfer
Some situations block a CETV transfer outright, and financial advice cannot unlock them.
Members of unfunded public sector schemes, where pensions are paid from current tax revenue rather than a ring-fenced fund, cannot transfer to defined contribution arrangements. Section 68 of the Pension Schemes Act 2015 introduced the restriction to protect the Exchequer from the upfront cash cost.7Legislation.gov.uk. Explanatory Memorandum to the Unfunded Public Service Defined Benefits Schemes (Transfers) Regulations 2015 This affects members of NHS, teachers’, civil service, armed forces, police, and firefighter schemes, among others. Transfers between unfunded public sector schemes or to other defined benefit arrangements may still be possible; the route into flexible drawdown is closed.
You also cannot transfer if you’ve already started drawing your pension. Once payments have begun, the right to a CETV no longer exists. Many schemes also refuse transfer requests from members within one year of the scheme’s normal retirement age, so starting well before that deadline matters.
Schemes in a Pension Protection Fund assessment period sit in a different position. During assessment, transfer rights are effectively frozen, and if the scheme ultimately transfers to the PPF, members lose the right to transfer out and instead receive PPF compensation, which is typically less generous than the full scheme benefits.8Pension Protection Fund. Technical Newsletter Issue 4
Tax When You Transfer and When You Draw
A CETV transfer between registered UK pension schemes is not itself a taxable event. No income tax applies when the money moves from your defined benefit scheme into a defined contribution arrangement. Tax comes into play when you start taking benefits from the receiving scheme.
At that point, you can normally take up to 25% of the pot as a tax-free lump sum, subject to the lump sum allowance of £268,275 unless you hold valid lifetime allowance protection giving you a higher figure. Anything you draw beyond the tax-free portion is taxed as income at your marginal rate. The lifetime allowance was abolished in April 2024 and replaced by a lump sum and death benefit allowance of £1,073,100, which caps total tax-free lump sums and death benefits across all your pension arrangements.9GOV.UK. Abolition of the Lifetime Allowance (LTA)
One current advantage of defined contribution pots for estate planning is that remaining funds can pass to beneficiaries outside your estate for inheritance tax. From April 2027, the government plans to bring most pension death benefits within the scope of inheritance tax. Dependant’s pensions from defined benefit schemes and benefits paid to a spouse or civil partner will remain exempt. If inheritance tax is a reason you’re considering a transfer, factor the upcoming change into your planning.
Watch for Scams
A large CETV makes you a target. The FCA warns of unsolicited contact offering a free pension review, promises of guaranteed high returns, pressure to act quickly, and complex offshore investment structures where the destination of your money is unclear.10FCA. Pension Scams Cold calls about your pension are illegal; if someone rings you out of the blue, hang up.
Check the FCA’s Financial Services Register before engaging any adviser and confirm they hold pension transfer permissions. Don’t take advice from the firm that contacted you first. The Pensions Regulator runs a Pledge to Combat Pension Scams that legitimate schemes and advisers sign up to.11The Pensions Regulator. Pledge to Combat Pension Scams Legitimate advisers do not need to rush you, and professional pension advice is never free.