New TVC

richallum

Selectapension has rolled out the TVC now. Just done my first one. TVC bit attached.

This client has 9 years to NRA. Earlier in the TVA the capital value of the fund required at NRA (i.e. In future terms) is:

Now, I know what's going on here. The capital value at NRA is in future terms and based on client specific market rates. If I discount that back by just inflation (RPI 2.5%) it's £238,000. The TVC is today's terms is £291,000.

Quite a difference. I know that TVC is generic assumptions with risk free return and no advice fees. It basically shows what the client would have to pay to buy out benefits today. I think it's designed to put people off transferring.

My question is, how are you presenting and explaining this to clients? Are you just showing the TVC or also the capital value at NRA discounted back as part of APTA?

richardgough

The TVC is, in reality, a different way of generating a critical yield albeit with different assumptions. Given that the FCA believe no client could understand the CY approach, no idea how anyone is going to truly understand this.

Having said that, given we are continually told that using CY as a basis for a transfer decision was "wrong" and other factors were more important then surely the same applies to the TVC.

Both approaches assume the client is going to buy an annuity; in my view, if that were the case then transferring is very unlikely to ever be a good idea.

Therefore, whilst we have to put this in reports, it really doesn't help with the advice process!

Haven't yet thought of how we will explain what this set of nonsensical figures means to a client though, which I guess doesn't really help!!!

Certainly will continue to make use of CY calc (on the basis that this gives me a sense check for the data being input into the TV analysis as well as an indication as to whether or not the TV is fair value for the benefits. I can't see how anyone would ever be able to get a feel for this from the new methodology.

There has to be an easier way to earn a living!

Jona

As @richardgough says TVC assumes annuity purchase. I am also struggling to see why you would transfer out of DB to buy an annuity.

So is the more pertinent piece of info in the report the age funds will run out if same level of scheme income is taken via drawdown and serve up the TVC figure with the same big pinch of salt that you did with the CY.....

richallum

I agree with you both that there are very few cases where a client would transfer with the view of buying an annuity. We do full cash flows to consider suitability and don't think this adds a lot to that process but we have to show it from 1 Oct and it's how to explain it in a meaningful way that's hard.

arongunningham

Is this the end of the TVC, just the 2 graphs and showing the difference?

Surely the next step is to determine how an investment would need to perform to bridge that gap, i.e. a CY?

richallum

The normal CY stuff is in there but it's based on different assumptions to the TVC.

Selectapension also now takes into account lifetime allowance and will adjust projected scheme pension at retirement if there is an excess based on a default commutation rate. We just spotted that when a projected pension looked a bit low. It's not clear unless you know what you're looking for.

Colinstewart76

If anyone has used Selectapension since yesterday, you'll now notice a more detailed LTA section in the client's data record section. This info is now used to create a more personalised projection of the DB pension at retirement, the fund required to buy that pension and the critical yield. I guess this is the APTA bit - it's tailored to the clients position, including an allowance for any LTA excesses.

As the TVC is generic it can't possibly have any adjustment in it for the LTA.

There's going to need to be quite a bit of explanation surrounding why the TVC figure is different than the APTA figure. That's going to be quite a challenge imo.

benjaminfabi

@richallum To answer your original question, albeit in a way that isn't really helpful:

I'm deselecting the TVC option in the TVAS so it doesn't come into the report! It's too confusing and until 1 October it isn't required. I expect the existing capitalised value to be removed from the report from that date. The only requirement will be a TVC as part of an APTA. With no prescribed format for an APTA, just specified components, the standardised structure is dead.

It will be interesting to see how selectapension reacts to this, especially as there are other companies entering the market. Their existing product needs to change dramatically between now and 1/10.

The capital value in the TVC is showing you the expected future cost of a secure income that is broadly similar to what is being given up, discounted back to the date of the analysis and compared to the CETV. It's prescribed and is even less useful than providing someone figures on what their investment could be worth if they could access it without paying any charges. It's one part of a value judgement that needs to consider also:

* control and flexibility over when and how much income
* risk profile , very importantly capacity for loss both before and after transfer
* attitude of the spouse to the death benefits in either scenario (a huge omission from most DB advice processes I see)
* life expectancy
* legacy
* need for tax-free cash
* tax charges on benefits
* PPF

This hasn't changed with PS18/6. I have always felt that it has been a rearranging of tables rather than a change of venue. Like Mifid II, it will become clearer when we are closer to and beyond 1/10.