If you’ve requested information about your UK pension, you may have received a statement showing a transfer value — sometimes called a Cash Equivalent Transfer Value (CETV).
For many people, this is the first time they realise their pension can be expressed as a lump sum. The figure can look surprisingly large, and it often raises an important question: is this what my pension is worth?
Not exactly.
What a pension transfer value represents
A transfer value is not a payout, and it is not a savings balance like a KiwiSaver account. Instead, it is an offer from the pension scheme.
It represents the amount the scheme is prepared to pay today if you choose to give up your future pension payments and move the benefits elsewhere.
In simple terms, the scheme is saying: “Rather than paying you a guaranteed income for life in the future, we could instead provide this lump sum now.”
That makes the transfer value less about what you have accumulated, and more about the cost of replacing the income the scheme has promised to provide.
Why a higher transfer value isn’t automatically better
It’s natural to focus on the size of the number. However, a transfer value is not designed to show a gain or a profit.
For many traditional UK pensions, particularly defined benefit or “final salary” schemes, the pension is primarily an income promise, not an investment account. The scheme has committed to paying you a set level of income for as long as you live, often with inflation adjustments and sometimes benefits for a surviving partner.
The transfer value is the scheme’s estimate of how much money would be needed today to replace that future income stream.
Because of that, a higher transfer value does not necessarily mean you are better off transferring, and a lower one does not automatically mean you are worse off staying. The number alone does not determine which option is suitable.
How transfer values relate to retirement income
This is an important distinction. If you remain in the pension scheme, the responsibility for providing your retirement income generally stays with the scheme.
If you transfer, the responsibility shifts to you. The lump sum would need to be invested and managed so it can generate income throughout retirement. Investment returns, market movements, and how long retirement lasts would then directly affect the outcome.
In other words, the decision is not simply about a lump sum versus another lump sum — it is about a guaranteed lifetime income compared with a flexible but uncertain future income.
A transfer value is a snapshot in time
Another key point is that a transfer value is not permanent. It is calculated at a particular point in time using economic assumptions.
Because of this, the figure can change, sometimes significantly, between quotations.
Transfer values are commonly influenced by factors such as:
long-term interest rates
inflation expectations
life expectancy assumptions
the financial position of the pension scheme
For example, when interest rates fall, transfer values often increase. When interest rates rise, transfer values often decrease. These changes reflect financial markets rather than anything specific about your personal situation.
This is why a transfer value should be viewed as a temporary offer, not a guaranteed entitlement.
Common misunderstandings about transfer values
Some of the most frequent assumptions might include:
The transfer value is what the pension is “worth”
The transfer value represents personal contributions plus growth
A large transfer value automatically makes a transfer attractive
The scheme is encouraging a transfer
In reality, the figure is simply a calculated estimate of the cost to the scheme of settling its future obligation to pay your pension income.
Why advice matters when interpreting a transfer value
A pension transfer decision can sometimes be unusual because the risk changes sides. Remaining in a pension scheme generally means the scheme carries the investment and longevity risk.
Transferring means those risks move to the individual. The outcome then depends on investment performance, withdrawals, and how long retirement lasts. Decisions involving defined benefit pensions can also be irreversible and may affect future guarantees and protections.
Because of the complexity and long-term impact, a transfer value on its own is not enough information to determine whether a transfer is appropriate. It needs to be considered alongside your wider financial position, retirement plans, tax situation, and your preference for certainty versus flexibility.
Pension transfers from UK schemes are subject to both UK and New Zealand regulatory requirements, and in some cases UK regulations require advice to be provided before a transfer can proceed.
Transferring a pension is not suitable for everyone, and in many cases remaining in the existing scheme may be appropriate.
If you have received a transfer value and are unsure what it means, speaking with a regulated financial adviser can help you understand the implications and trade-offs before making any decisions.
If you would like to discuss your situation, you are welcome to contact the Pension Transfers team to arrange an initial discussion about your circumstances.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.
